Key banks shoring up capital via QIPs

India's key lenders have been shoring up capital from foreign funds to take on the slowdown and the expected write-offs on the back of Covid-19 pandemic. Accordingly, some of the biggest lenders have taken advantage of higher inflows to raise substantial funds via the Qualified Institutional Placement (QIP) route.

Several other banks have either raised capital in the past few months or plan to do so in order to create a buffer amid the pandemic. "FPIs (Foreign Portfolio Investments) remain positive on the QIP of banks at the current valuations and have lapped up the chance of getting large chunks in the issue," said Deepak Jasani, Head of Retail Research at HDFC Securities.

As per the NSDL, equity flows surged in June 2020 to Rs 21,832 crore, while it tapered down to Rs 7,563 crore in July. It has again shown a spike of Rs 22,192 crore during the initial part of August. "Clearly, the large lenders in both the banking and the non-banking sector have started to raise equity to strengthen their capital position in the context of increased asset quality risks in the post-Covid era. They have been supported by a revival in both FII and DII interest in large and well-governed domestic financial institutions, with retail investors also adding to the demand," said Suman Chowdhury, Chief Analytical Officer at Acuite Ratings and Research.

"In our opinion, the monetary stimulus provided by the RBI to address the likely stress from the Covid lockdown along with fresh clarity on loan restructuring has improved the near-term outlook for the leading private sector banks and NBFCs."

Notably, even the Nifty Bank Index has rebounded sharply by 35 per cent from the low seen in the last week of March, which reflects the heightened activity in the secondary market.

"Financial institutions, both banks and NBFCs, have raised or are in the process of raising a large amount of equity. The objective seems to be to further strengthen the equity buffers in this uncertain environment in the event of large losses and liquidity stress. Even the regulator has asked them to stress-test their balance sheets and address the requirements," said Prakash Agarwal, Director and Head- Financial Institutions, India Ratings and Research. "However, some of this is also driven by the sense of preparation for opportunities that may emerge post the Covid period in the face of inevitable consolidation in the sector."

Earlier this week, Axis Bank said it has raised Rs 10,000 crore through QIP at a price of Rs 420.10 per share.

Similarly. ICICI Bank has set a floor price of Rs 351.36 per share as part of its plan to raise up to Rs 15,000 crore through several modes, including QIPs. In July, UCO Bank's Board approved to raise Rs 3,000 crore through various modes, including Follow On Public Offer (FPO) and QIP, in the financial year 2020-21. According to VK Vijaya Kumar, Chief Investment Strategist at Geojit Financial Services: "Banks, particularly the leading banks, and mortgage lender HDFC have succeeded in effortlessly raising capital at prices around the market prices." "Most investors in these issues are FPIs, particularly long-only funds. This is a reflection of the confidence of these institutions in these banks."