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Regional rural banks set to unlock value; listing of shares in the offing


The country’s capital market might see a new breed of banking entities go in for public listing. Regional rural banks (RRBs), promoted by public sector banks and Central and state governments, are coming out of the shadows of their sponsor banks — PSBs, which ironically are weighed down by huge bad loans and losses — to launch initial public offerings (IPOs) and list their shares.

At least two RRBs — Andhra Pradesh Grameena Vikas Bank (APGVB) and Saurashtra Gramin Bank (SGB) — sponsored by State Bank of India (SBI) could be in line to raise capital through IPOs. “Two banks that are matured enough to go public are Andhra Pradesh Grameena Vikas Bank and Saurashtra Gramin Bank. Both are doing very well,” said Dinesh Khara, managing director, SBI.

RRBs, which were formed under the RRB Act, 1976, provide credit and other facilities to small farmers, agricultural labourers and artisans in rural areas. The Act was amended in 2015 whereby such banks were permitted to raise capital from sources other than Central, state governments and sponsor banks. Currently, 56 RRBs are operating in the country with total deposits of Rs 3,59,321 crore, advances of Rs 2,30,387 crore and 21,294 reporting offices as of June 2017, according to data from the Reserve Bank of India (RBI).

“We have got 18 RRBs. They have got a balance sheet size of Rs 1,50,000 crore and a branch network of 5,000 across the country. Some of the banks are doing well. At least two of them will take the IPO route. For that, the enabling provisions are getting created, the RRB Act has been amended, collaborations have been drafted by Nabard (National Bank For Agriculture And Rural Development) so that RRBs can also raise money from the market,” Khara said in an interview to The Indian Express.

In RRBs, 50 per cent is held by the Central government, 35 per cent by the sponsor banks and 15 per cent by the state government. The new amendment in the RRB Act says that the central government and sponsor can hold up to 51 per cent stake. “Approvals have to be taken from the Central government, Nabard and state government. Now it’s in the discussion stage,” said a banking source.

For APGVB, the net non-performing asset (NPA) ratio is 0.71 per cent as of March 2017. It has a balance sheet size of Rs 25,000 crore and a profit of Rs 352 crore. SGB has a balance sheet size of close to Rs 9,000 crore and a profit Rs 38 crore. Its net NPA is around zero per cent. “Once these two RRBs raise money through IPOs, we expect at least half a dozen RRBs to look at the IPO route to raise capital. Many of the RRBs are doing well while PSBs are roiling in NPAs and losses,” said an investment banker.

Kerala Gramin Bank, sponsored by Canara Bank, has deposits of Rs 15,075 crore and a profit of Rs 102 crore for the year ended March 2017. Uttar Pradesh has got as many as seven RRBs. Allahabad UP Gramin Bank reported a net profit of Rs 31.37 crore and deposits of Rs 9,613 crore in the financial year 2016-17. Kaveri Grameena Bank of Karnataka which has a deposit base of Rs 9,632 crore, posted a profit of Rs 85.23 crore. Maharashtra Gramin Bank reported a profit of Rs 65 crore and deposits of Rs 5,957 crore for the year ended March 2016. Prathama Bank, the first RRB which was set up 42 years ago, had a balance sheet size of Rs 13,942 crore and a profit of Rs 88 crore for 2016-17.

Some of the PSBs are struggling with huge NPAs. IDBI Bank posted a loss of Rs 5,158 crore for FY17, Bank of India Rs 1,558 crore loss, Indian Overseas Bank Rs 3,416 crore loss and Central Bank of India Rs 2,439 crore loss. Gross NPAs of banks were Rs 8,29,338 crore (10.21 per cent of advances) as of June 2017.

“It’s (going public) our idea. These banks have got branch network. They have got a decent customer base. They are offering all banking operations, including mobile banking, RTGS and NEFT,” Khara said about the IPO plans of SGB and APGVB. As the RRBs are closely held by the sponsor banks and Central and state governments, listing of these banks will be a major step forward for the entire banking sector.

Meanwhile, Indian banks are likely to require around $65 billion (close to Rs 4,16,000 crore) of additional capital to meet new Basel-III capital standards that will be fully implemented by the financial year ending March 2019 (FY19), according to Fitch Ratings’ latest estimates. While the Cabinet Committee on Economic Affairs has authorised an Alternative Mechanism to take decision on the divestm

ent in respect of PSBs through exchange-traded funds or other methods subject to the government retaining 52 per cent stake, there has been little progress on this front so far despite prodding by the RBI.

(Source: The Indian Express, September 26, 2017)


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