Mutual Funds Might Lead Funding Charge in PSU Banks' Upcoming QIPs, Says Report

Five state-owned banks, including Punjab National Bank, Union Bank of India and Bank of Maharashtra, are reportedly preparing to raise Rs 28,000 crore through qualified institutional placements (QIPs) over the next 6 to 9 months as part of their capital-raising plans for FY25.

As per a report by moneycontrol, banks are likely to seek funding from domestic mutual fund houses once again to fulfill their financial requirements.

This could mark the second instance of public sector banks pursuing capital raising through equity avenues since 2021. During the pandemic year of FY21-22, seven PSBs collectively raised Rs 20,000 crore through preferential issues and QIPs. Notably, domestic mutual funds showed strong interest in these issuances, while foreign investors displayed minimal interest during that period.

As per sources cited in the report, preliminary discussions have started with major mutual fund houses regarding their participation in the QIPs.

Bankers and arrangers involved in the potential QIPs suggest that the upcoming round may mirror previous experiences. “One should consider this round of QIP more as a show of strength by the PSBs and their ability to garner long-only domestic funds without having to rely on the government for support,” a former CEO of a PSB told moneycontrol.

It is unlikely that the upcoming QIPs will substantially reduce the government's ownership stake in PSBs, which typically ranges from 75 per cent to 90 per cent for most state-owned banks, excluding the State Bank of India.

As for foreign investors, the interest doesn't seem very strong.

“The appetite of foreign investors to participate in any of the QIPs will be known only when banks start conducting road shows, though for now their interest doesn’t seem very high,” a merchant banker stated in the report.

Except for Bank of Maharashtra and Punjab National Bank, which might raise just under a billion dollars each, the remaining QIPs range from Rs 2,000 crore to Rs 5,000 crore. Given these levels, the issuances may not be large enough to attract significant interest from foreign investors looking to acquire "decent" stakes in these banks.