Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bank recap: Bolsters capital adequacy and imparts capital raising
flexibility
We view the government’s move to infuse capital in state owned banks (SOB) a
key positive as it will further strengthen the capital adequacy of banks, preparing
them for the next stage of growth and also impart them flexibility to raise capital
from the market as the cushion has increased. We expect the impact on earnings
to be minimal–5%—whereas addition to book value will be around 3%.
First tranche: Capital infusion through PNCPS; focus on improving tier I
In Budget 2010-11, government had announced providing INR 165 bn towards
capitalization of SOB with the aim to maintain their Tier I at around 8% (while
shoring up lending capacity by INR 1.8 tn). The first tranche of bank recapitalization
was completed by July 2011, amounting to INR 56.9 bn where IDBI
(INR 31.2 bn), Vijaya Bank (INR 7 bn), UCO Bank (INR 6.7 bn), Bank of
Maharashtra (INR 5.9 bn), United Bank of India (INR 2.5bn), Central Bank of
India (INR 2.5 bn), and Union Bank of India (INR 1.1 bn) were key beneficiaries.
Mode of capital infusion in IDBI was through preferential placement of equity
while others got capital through perpetual non cumulative preference shares
(PNCPS).
Second tranche: Strategic towards shoring up government stake; capital
infusion in FY11 > INR 200 bn
In November 2010, the government approved another tranche of capital infusion
in banks of INR 97.5 bn. However, comparing the amount allocated to each bank
versus its tier I, it appeared government preference was skewed towards
increasing stake in SOB to 58%. Over the past few weeks, banks have started
announcing capital infusion through preferential placement in equity in sync with
the November plan and also for shoring up the tier 1 ratio (Bank of India, Indian
Overseas Bank and Syndicate Bank). With this, total capital infusion for FY11 will
be around INR 200 bn. Preference for equity infusion appears to be influenced by
implementation of Basel III, whereby predilection is towards pure equity. In
Budget 2011-12, the government allocated INR 60 bn for PSU banks’
recapitalization, much lower than the capital infusion attained in FY11 (apparently
not budgeting for SBIN’s rights issue).
Expect 5% EPS impact; 150bps RoE compression while book value
accretion of 3%
On an average the capital infusion by the government has happened at more than
10% premium to CMP. Since capital infusion is happening above the book value, it
will be book value accretive, boosting it ~3%. The benefit will be highest for
Union Bank and Bank of Baroda. EPS will be impacted 5%, while RoEs will
compress by 150bps. The impact will be most on Dena Bank and Oriental Bank of
Commerce.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bank recap: Bolsters capital adequacy and imparts capital raising
flexibility
We view the government’s move to infuse capital in state owned banks (SOB) a
key positive as it will further strengthen the capital adequacy of banks, preparing
them for the next stage of growth and also impart them flexibility to raise capital
from the market as the cushion has increased. We expect the impact on earnings
to be minimal–5%—whereas addition to book value will be around 3%.
First tranche: Capital infusion through PNCPS; focus on improving tier I
In Budget 2010-11, government had announced providing INR 165 bn towards
capitalization of SOB with the aim to maintain their Tier I at around 8% (while
shoring up lending capacity by INR 1.8 tn). The first tranche of bank recapitalization
was completed by July 2011, amounting to INR 56.9 bn where IDBI
(INR 31.2 bn), Vijaya Bank (INR 7 bn), UCO Bank (INR 6.7 bn), Bank of
Maharashtra (INR 5.9 bn), United Bank of India (INR 2.5bn), Central Bank of
India (INR 2.5 bn), and Union Bank of India (INR 1.1 bn) were key beneficiaries.
Mode of capital infusion in IDBI was through preferential placement of equity
while others got capital through perpetual non cumulative preference shares
(PNCPS).
Second tranche: Strategic towards shoring up government stake; capital
infusion in FY11 > INR 200 bn
In November 2010, the government approved another tranche of capital infusion
in banks of INR 97.5 bn. However, comparing the amount allocated to each bank
versus its tier I, it appeared government preference was skewed towards
increasing stake in SOB to 58%. Over the past few weeks, banks have started
announcing capital infusion through preferential placement in equity in sync with
the November plan and also for shoring up the tier 1 ratio (Bank of India, Indian
Overseas Bank and Syndicate Bank). With this, total capital infusion for FY11 will
be around INR 200 bn. Preference for equity infusion appears to be influenced by
implementation of Basel III, whereby predilection is towards pure equity. In
Budget 2011-12, the government allocated INR 60 bn for PSU banks’
recapitalization, much lower than the capital infusion attained in FY11 (apparently
not budgeting for SBIN’s rights issue).
Expect 5% EPS impact; 150bps RoE compression while book value
accretion of 3%
On an average the capital infusion by the government has happened at more than
10% premium to CMP. Since capital infusion is happening above the book value, it
will be book value accretive, boosting it ~3%. The benefit will be highest for
Union Bank and Bank of Baroda. EPS will be impacted 5%, while RoEs will
compress by 150bps. The impact will be most on Dena Bank and Oriental Bank of
Commerce.
No comments:
Post a Comment