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All the 12 public sector banks (PSBs) which have been deprived of capital infusion by the government could face a serious challenge in raising equity capital due to their poor valuation scorecard. Barring one, all these banks are currently trading at deep discounts to their book values. Mounting bad loans have raised doubts among investors over the quality of the books of these banks. Ten out of these 12 lenders have reported gross non-performing assets (GNPAs) of more than five per cent as of December-end 2014.
Since the government has agreed to dilute its stake up to 52 per cent, there is lot of legroom available to these banks. However, given the poor valuations, the Centre isn't keen. The government has asked these lenders to to wait till valuations improve.
Taking into account that regulatory forbearance on debt recast is to end on April 1, the asset quality pressure for PSBs, which share a disproportionate burden of stressed assets, is not likely to abate anytime soon. This could result in poor investor appetite for their equity offerings.
