| Money churner
New Delhi, March 13: The government has decided to allow up to eight state-run banks to float public issues to raise between Rs 8,000 crore and Rs 10,000 crore. However, the government itself will piggyback on just two of them to offload its holding and raise Rs 1,500 crore.
North Block officials said, 'We will be piggybacking on only two offerings ' Punjab National Bank, which alone should give us about Rs 1,000 crore, and Syndicate Bank ' which may come towards the end of the fiscal.'
Another half-a-dozen state-run bank public issues will be cleared by North Block, but the government will not sell its stake through these offerings. 'It would be wrong on our part to try snuffing out capital in a bank, which is trying to raise funds to meet Basel II provisioning norms. Hence, we have to be very choosy about letting banks return their capital to us or selling our stake in them to the public.'
Besides Punjab National Bank, public issues from Bank of Baroda, Oriental Bank of Commerce, Allahabad Bank and Bank of India are in the pipeline.
Others who have or are applying to the government include Canara Bank, Andhra Bank, Vijaya Bank, Syndicate Bank and Uco Bank. Syndicate Bank, too, wants to bring a public offering towards the end of the fiscal, in which the government is interested. The government is agreeable to let Syndicate Bank return some capital to it and will use the issue to earn some money for its kitty.
However, only about eight of them will finally be allowed to tap the market this fiscal.
This is because a large flood of offerings by PSU banks could see the banking sector stocks as a whole bottoming out.
'No fund manager puts all his eggs in one sector. And none will just invest in banking, so the number of and amount of banking issues on offer has to be kept in check,' agreed market analyst Sudatta Sengupta.
The government also feels that there is a need to ensure that there is 'no overcrowding' of the market for fresh bank issues. Such an occurrence would obviously hit not only the mood in the bourses but also the owner's share value.
Most of the banks seeking to float public offerings have to shore up their capital base as otherwise they will not be permitted to dole out fresh loans or accept new deposits beyond a limit.
Only a few of the stronger banks are raising money to return part of their capital to the government or to expand. Banks like Punjab National Bank have been seeking capital mainly to improve their book values and earnings per share, which would eventually reflect on their market rates.
Finance ministry officials said one of the reasons they have been insisting that PSU banks need to merge and create bigger monoliths is that at least some of the banks are too weak to survive otherwise when the stricter Basel II norms are brought in.
North Block, of course, also said mergers are needed ahead of the Indian financial market opening up to large transnational banks in order to counter the fiscal muscle power that will be imported.