PSU banks mull realty asset SPVs for funds

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The government is weighing innovative ways to address the huge fund requi­rement for the recapitalisation of public sector banks.

PSU lenders need Rs 45,000 crore this financial year but the government has made provisions for only Rs 11,200 crore. For the remaining amount, the government is asking the banks to explore the option of leveraging their huge real estate holdings.

The options being weig-hed include setting up of holding companies and special purpose vehicles (SPV) to raise funds.

The State Bank of India seemed to be quick to take the cue. Hours after finance minister P Chidambaram made the suggestion at a meeting with the top executives of PSU banks, the country’s largest lender said it was looking at the option of setting up a holding company.

“It (setting up a holding company including all subsidiaries) is one of the possibilities (for fund raising),” SBI chairperson Aru­n­dhati Bhattacharya said.

In this model, each bank will set up a holding company, to which all assets of the bank and its subsidiaries will be transferred, enabling it to raise capital from the market. RBI has already cleared the proposal, but market regulator Sebi is yet to vet it.

Financial services secre­tary G S Sandhu, who bri­e­fed journalists on the meeting, said various options like Esops, an SPV model and the holding company model were discussed at the meeting as ways for the banks to raise funds from the market to meet their capital requirement.

In the SPV model, banks would transfer their real estate holdings to SPVs, which will then leverage those assets to raise money from the market. Sandhu didn’t give a figure how much money could be raised on the real estate assets of the banks.

The meeting could not take a decision on any of the options for the want of clearance from regulators like Sebi and Irda, the insurance regulator.

Another option is to raise funds by issuing shares to employees, for which the Reserve Bank of India has already given its The government has also been weighing other ways like rights issues to minority shareholders and greater participation of insurance funds in perpetual bond issues of banks. RBI has given its nod to perpetual bonds and talks are going on with the Irda to get greater participation of the insurance companies.

Sandhu said the government was not going to dilute its stake in public sector banks below 51 per cent. These options can facilitate direct capital infusion into the fund-starved banks, as the government is not in a position to provide huge capital to them.

Indian banks will require up to Rs 5 lakh crore over the next five to 10 years to meet the Basel-III requirements. Sandhu said the government might make provisions for an additional Rs 6,000-8,000 crore for this financial year apart from the Rs 11,200 crore provided in the interim budget.

At the annual review meeting, the finance minister asked the banks to get tough with willful defaulters and said that a position where the “promoter is prosperous but the company is sick” would not be acceptable.

He asked banks to form a consortium and take joint action against such defaulters and consider changing managements of defaulting companies.

Non-performing loans of banks improved in the final quarter of the last financial year, compared with that of the December quarter thanks to vigorous recovery efforts.

“In the last quarter, there was an improvement on the NPA front. We hope this trend will continue, because this has happened due to vigorous recovery efforts by banks and other measures like cost cutting on account cheaper funds and cheaper deposits,” Sandhu said.

Gross NPAs in the March quarter improved to 4.44 per cent from 5.07 per cent in the previous quarter. Banks have made provisions for Rs 90,000 crore for bad debt.

“If the original borrower does not come up with some option for repayment, we will call some other person. If he is able to provide that, then the assets could be handed over to the other person,” Sandhu said.

Sandhu said infrastructure, textiles, iron and steel, mining and aviation are the five sectors that account for almost 23-25 per cent of the advances of PSU as well as private banks.

PSU banks are major stakeholders with 85-90 per cent of the total exposure to these sectors. As many as 55 per cent of the stressed accounts, including NPAs and restructured accounts, are from these sectors.

Sandhu said options were being explored to provide long-term financing for infrastructure projects.

The housing sector, including the priority sector housing, has seen a 18.4 per cent growth during 2013-14 with total advances of Rs 5.4 lakh crore. NPA in home loans has reduced from 1.8 per cent in financial year 2012-13 to 1.47 per cent in 2013-14.


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