Keep the faith: SBI picks up Rs 15,000 cr in largest-ever QIP

The State Bank of India has managed to pick up Rs 15,000 crore from the market through its Qualified Institutional Placement (QIP) – the biggest ever amount through this route in Indian history.

It is a result of steady improvement in the financials of the country's largest lender over the past one year.

The QIP was oversubscribed, with a demand of Rs 27,000 crore from institutional investors at Rs 287.25 per share, suggesting investors have full faith in the bank's ability to overcome the non-performing assets (NPA) crisis, which has affected the banking sector negatively over the past three years.

The state-run Life Insurance Corporation of India bought 38% shares in the QIP, while domestic investors bought 25%, followed by foreign institutional investors (26%). Foreign hedge funds bought 11% of the shares in the institutional stake sale.

Rising from rock bottom

The SBI management has steadily improved the bank's financial indicators after hitting rock bottom in the first two quarters of FY17.

In the first quarter of 2016-17, SBI reported a 31.7% year-on-year drop in standalone net profit to Rs 2,520 crore.

This was followed by another 34.6% fall in the second quarter net profit to Rs 2,538 crore. The NPAs in the second quarter of FY17 also increased to 7.1%.

In the third quarter, the NPAs touched a high of 7.23%, even though the bank reported a 134% rise in its profits to Rs 2,610 due to a one-time gain of Rs 1,755 crore from the sale of a 3.9% stake in SBI Life Insurance Co. Ltd.

In the last quarter of 2016-17, the improvement in the bank's performance was clearly visible, with its net profit rising by 123% at Rs 2,814.82 crore, while the NPAs declined to 6.90% of gross advances, down 233 basis points from the 7.23% reported for the third quarter.

Going forward

Even as SBI, on a standalone basis, has started to show better results, its merger with its five subsidiary banks – State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore – will put pressure on the bank's balance sheet for a few upcoming quarters, at the very least.

The QIP of Rs 15,000 crore will take care of the bank's capital needs, and would raise SBI's key capital ratios by 79 basis points. The share sale will improve the bank's capital-to-risk weighted assets ratio to 13.64%, while the common equity Tier 1 is expected to go up to 10.2% .

Additionally, SBI will raise funds in the current financial year through share sales in its life insurance arm and other non-core businesses.

After the share sale, the government's stake in the bank will fall to 57.07%.