In the wake of the recent government announcement on capital infusion for public sector banks (PSBs), dilution of government equity up to 52 per cent in the state-owned lenders can fetch valuation much higher than the estimated potential of Rs 58,000 crore as provided in the re-capitalisation plan, an ASSOCHAM report claimed.
"As PSU banks have been given over-weightage following the government announcement of capital infusion, their valuations have already gone up between 20-30 per cent in the first few days, even before unveiling of details of the recapitalisation bonds and the reform roadmap," the report stated.
As the details emerge in the coming few weeks and months, these stocks, particularly of the larger banks can easily move up by another 30-40 per cent, taking their market capitalisation commensurately high.
"This would surely mean, that if the banks are able to encash the sweet spot, they can easily raise much more than Rs 58,000 crore," it added.
The market is ready to give a premium on the PSU banks, notwithstanding some profit-taking, post October 24, the report said.
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The government can then tweak the project bonds and reduce their size below Rs 1,35,000 crore, bringing down the interest burden on the budget and avert pressure on the fiscal, it added.
"It is a different matter that the money so raised by government dilution would accrue to the banks and not the exchequer. All the same, all this financial revamp would ultimately lead to a huge benefit to the government itself, in terms of higher market capitalisation. After all, the largest shareholder would still be the Government of India," said D S Rawat, Secretary General- ASSOCHAM.
Besides, the chamber report noted that once the uptick in lending resumes, there would be consequent advantages by way of higher economic growth and tax buoyancy.
Earlier in the month, Union Finance Minister Arun Jaitley had announced an unprecedented PSU banks recapitalisation program of Rs 2.11 lakh crore, out of which Rs. 1.35 lakh crore will come from recap bonds, and rest from markets and budgetary support.
"To improve the lending capacity of the banks, we have announced the recapitalisation programme, which is essential to increase public spending on infrastructure, and that expenditure on infrastructure," Jaitley said at a press conference here.
Adding to this, he said there is a need to increase public investment, for which, bold steps will be taken by the government to recapitalise banks in the country.
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