Bank of Baroda plans to raise capital up to Rs 3,000 cr via tier-II bonds

BOB is amongst the better capitalised PSBs, with a common equity tier I capital of 8.49% in 1QFY20.

Public sector lender Bank of Baroda (BoB) plans to raise capital up to Rs 3,000 crore through tier-II bonds for meeting capital adequacy norms for the merged entity (integration of Vijaya and Dena Bank with BoB).

Rating agency India Ratings has assigned “AAA” stable rating to proposed bond offering by the PSB. Ratings for state-owned lender factors in large franchise, a pan-India presence, adequate funding base and liquidity. BOB is amongst the better capitalised PSBs, with a common equity tier I capital of 8.49 per cent in 1QFY20 (June 2019) and a capital adequacy ratio of 11.50 per cent.

The amalgamation has led to dilution of capital ratios as expected. However, the recent announcement of capital infusion of Rs 7,000 crore should add to the bank’s capital buffers (CET I could increase by about 120 basis points). The capital available with the merged entity will be sufficient to support its targeted level of growth for FY20, rating agency said in a statement.

Meanwhile, the agency has flagged concern over appointment of New Managing Director and Chief Executive (MD&CEO). P S Jayakumar has been heading BOB as MD& CEO since October 2015.

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While he was initially appointed for a three-year term, he received a one-year extension from the government in October 2018. His term will end on 12 October 2019. The Banks Board Bureau has invited applications for the positions of MD & CEO of four PSBs in August 2019, which includes BOB.

The limited clarity regarding the appointment of the new MD and CEO could have a bearing on the bank’s near-to-medium term performance, especially since the amalgamation has become effective recently.

BOB maintained a relatively high provision coverage ratio (PCR) of 64.1 per cent on an amalgamated basis in 1QFY20 (excluding technical write-offs). The ratio, however, declined from 67.6 per cent in 4QFY19 (on pre-amalgamation basis) due to the amalgamation. While slippages declined on a year-on-year basis in FY19, it will remain a key monitorable in the near term.

BOB’s amalgamation with Dena Bank and Vijaya Bank became effective from 1 April 2019. The completion of the integration will take another 15-16 months, with the integration of the IT systems requiring the longest time.

Anti-patriotic': RSS wing says India must not issue foreign currency bonds

They say it is anti-patriotic as it could create long-term risks for the economy, potentially allowing rich foreign nations and their financial institutions to dictate the country's policies.

An influential Hindu nationalist group close to Prime Minister Narendra Modi's ruling party has demanded his government review its plan to raise money by selling foreign currency bonds.

They say it is anti-patriotic as it could create long-term risks for the economy, potentially allowing rich foreign nations and their financial institutions to dictate the country's policies.

"We can't allow this to happen," declared Ashwani Mahajan, the co-convenor of Swadeshi Jagran Manch (SJM), the economic wing of the Rashtriya Swayamsevak Sangh (RSS).

ALSO READ: Budget 2019: In a first, India to issue sovereign bonds in global market

The RSS was the key founder of the ruling Bharatiya Janata Party and has people it nurtured in top positions in the government, including Modi himself.

Declaring that the SJM will campaign against the plan by convening meetings of influential economists, Mahajan said: "We are confident that government will withdraw its decision on these bonds."

"We must look at the experience of countries that have taken loans from international markets to meet their government deficit. The experience of these countries has been far from good," he said, citing Argentina and Turkey as examples.

Mahajan said going overseas to borrow may mean that the rupee currency depreciates at a faster rate and allows foreign governments to demand tariff reductions.

A Finance Ministry spokesman declined to comment for this story.

Speaking at a business summit in London, British Prime Minister Theresa May expressed hope that the Indian government would choose the British capital as the location to issue its first international sovereign bonds.

New Delhi has not so far given any details about where they will be issued.

Subhash Chandra Garg, the top official at the Finance Ministry, told Indian business leaders last week that the overseas debt move was part of efforts to bring down real interest rates for Indian firms, to help the economy grow faster.... : Like it or not, gene

CARE places PNB HFC rating on watch, flags rising share of corporate loans

The action is triggered by the increasing share of the corporate loan book in PNBHFL's total loan portfolio and the consequent vulnerability arising out of weakness in real estate sector.

CARE Ratings has placed PNB Housing Finance Ltd's ( PNBHFL) ratings on watch with developing implications due to requirement to raise money to maintain comfortable capital adequacy and gearing level.

The action is triggered by increasing share of corporate loan book in PNBHFL's total loan portfolio and the consequent vulnerability arising out of weakness in real estate sector.

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CARE in a early morning statement said the impact of the stake sale announced by Punjab National Bank (PNB; promoter of PNBHFL) in PNBHFL is also to be seen.

PNBHFL debentures and bonds carry "AAA" ratings.

CARE will continue to monitor developments with regard to the above and would take up review of rating when more clarity emerges on the above aspects, it added.

The ratings of PNBHFL continues to derive strength from its experienced management team, brand linkages with PNB, consistent growth in loan portfolio, profitability profile of the company.

The company has well diversified resource profile, comfortable asset quality numbers, maintenance of adequate capitalization levels and adequate liquidity position.

The ability of the company to maintain its asset quality, profitability, capital adequacy and liquidity position remain key rating sensitivities.

CARE said the retail housing finance segment continues to be resilient and healthy. But vulnerability of whole sale loan book of the HFCs including PNBHFL has increased given weakness in real estate sector and credit profile of real estate developers.

Although, NPA for the wholesale loan book is Nil in December 31, 2018, overall, its vulnerability is expected to remain relatively high and could impact asset quality profile to some extent over next 1-3 years. The wholesale loan book forms nearly 22% share of Assets Under Management ( AUM).

Also, vulnerability of retail loan against property (LAP and NRPL; 16% and 4% of AUM as on Dec-18) portfolio of HFCs including PNBHFL is expected to be higher than retail housing finance business.

The sustainability of the asset quality performance in these segments will be critical for the credit profile of the company going ahead.

The sustainability of the asset quality performance in these segments will be critical for the credit profile of the company going ahead.