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After opening the day on a positive note, the Indian Markets have continued to trade in the green. Sectoral indices are trading on a mixed note with stocks from the energy, capital goods and consumer durables sectors leading the gains. Telecom stocks are trading in the red.
The BSE Sensex is trading up 72 points (up 0.3%) and the NSE Nifty is trading up 19 points (up 0.3%). The BSE Mid Cap index is trading down by 0.1% while the BSE Small Cap index is trading down 0.7%. The rupee is trading at 68.77 to the US$.
Most of the PSU banking stocks are trading on a negative note with Indian Bank and Bank of Baroda leading the losses. As per a leading financial daily, public sector lender IDBI Bank has priced its equity shares to be issued to Life Insurance Corporation of India (LIC) at Rs 53.44 per share. The size of the equity on offer is Rs 15 billion. This comes as the bank plans to issue 280.6 million shares of Rs 10 each at a premium of Rs 43.44 a share to LIC on a preferential basis.
The bank has stated that the above price has been fixed according to the Securities and Exchange Board of India's (SEBI) formula. Further, the bank will be seeking shareholders' nod for the offering at a meeting scheduled in March 2016.
After the issue, LIC would hold 19.18% stake in IDBI Bank, up from 7.24%. The Indian government's shareholding would decline to 69.84% from the present level of 80.16%.
It should be noted that the bank is raising money through fresh issue of equity shares in order to meet the capital requirements for business growth. Further, the funds will also help the bank maintain its capital adequacy ratio, especially after making provision for non-performing assets and stressed loans. The capital adequacy ratio for the bank was 13% with Tier-I capital of 8.71%, at end of December 2015.
On a separate note, the bank has also got board's approval for raising up to US$ 500 million through tier I bonds. The issuance of bonds is aimed at enhancing the tier 1 capital of the bank.
IDBI Bank is one of India's largest commercial banks. During the third quarter ended December 2015, the bank reported a net loss of Rs 21 billion as against a net profit of Rs 1 billion in the corresponding period a year ago. This was due to provisions for bad loans for the bank quadrupling during the quarter. The bank's provisions for the quarter rose to Rs 37 billion from Rs 9 billion in the same period a year ago.
The bloating bad loans and the provisioning for the same have kept the public sector lenders (PSUs) in dire need of capital to meet not just incremental credit demand but also Basel-III norms. To find a way through this, many PSUs have been raising capital from the bond market through tier-I and tier-II bonds. As such, bond issuances have risen since October during this fiscal (subscription required). Private agencies such as ICRA and CARE Ratings have estimated that banks need Rs 1.8 trillion in Tier-I capital, out of which Rs 700 billion will be through government infusion.
Stocks in the telecom space are trading on a negative note with Reliance Communications and AGC Networks leading the losses. In another news update it was reported that telecom service providers have installed 65,000 cellular sites in the last six months in 2G and 3G services across the country. The same was undertaken to arrest call drops.
It was noted that around 20,000 additional sites were added for 2G (GSM) services across India while around 45,000 sites have been added for 3G services during the last six months.
The Communications and IT Minister Ravi Shankar Prasad has stated that the government has actively worked in recent months to reduce the instances of call drops and further improve the quality of mobile network coverage.
It should be noted that most of the development in this sphere came in after Telecom Regulatory Authority of India (TRAI) asked mobile operators to compensate consumers for every call drop which takes place.
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