Much heat has been generated after the announcement of country’s Finance Minister Nirmala Seetaraman on her plans to privatise 2 Public Sector Banks, Bank of Maharashtra and IDBI bank as to “What made these Banks to go for 100% privatisation?”.
Yesterday Reuters News agency informed that four Banks viz., Bank of Maharashtra (BoM), Bank of India (BOI), Indian Overseas Bank (IOB) and Central Bank of India (CBI) were chosen for 100% privatisation. In earlier columns, I already wrote that Bank of Maharashtra would be selected first for privatisation if everything goes well.
Now lets see how the performance of these banks listed for privatisation and its potential for sale.
Bank of Maharashtra
It has maharastra state as prime area of bank and some branches in all other cities of all states.
Plus points: It has posted profits for 2019-20 and during last 3 quarters till December 2020. Profits for last three quarters were Rs.154.07 crore, 141.67 crore and Rs.105.07 crore respectively. Share price was hovering around Rs.16 last month. Now share price increased to Rs.18.50 today. Govt holds 93.33% of shares that means 612,26,27,927 shares as on date.
Even if share price increases to Rs.20 also, by selling all shares Govt gets hardly gets Rs.12,245.25 crore.
Minus points or threats
As on December 31, 2020, the deposits of BOM were Rs.161,971 crore and advances Rs.99,401 crore that means hardly 61.36% of deposits were with the goverment. remaining amount of around 35% were in investment. The yeild on investment bonds was very low between 6% to 7% only.
To increase the advances adequate capital and Reserves were not there. Unless advances increases to 75% of deposits net profit can not be increased considerably. So who ever purchase BOM they have to invest additional capital of Rs.5000 crore to strengthen the bank.
Moreover NPAs were 7.69% of advances. NPAs will not generate any income by interest income or processing charges. NPAs above 5% are not acceptable for Market.
- Bank of India
This Bank has good presence in Central India especially in UP and Bihar. Last month share price was hovering around Rs.59.
This posted profits above Rs.500 crore during last three quarters, Q1 Rs.843.60 crore and Q2 Rs.525.78 crore. Last month Mcap was Rs.19514 crore.
Plus points of BOI
Now share price increased to Rs.64.10 . Govt got 291,96,90,866 shares @ 89.10% holding. Even if share price increases to Rs.80 also Govt may get Rs.23,356.80 crore by selling all the shares. This amount is higher than BOM value.
Minus points of BOI
Deposits of BOI were Rs.611,879 crore on 31-12-2020 and advances Rs.368,711 crore, that means advances were hardly 60.25% of deposits. Remaining amount mostly in investment, which has low yeilding now. So another Rs.7000 crore to be invested additionally as capital to increase advances to 75% of deposits.
NPAs were huge at 13.25% advances . That is why profitability was very low and capital also low as profits not posted in last two years.
- Indian Overseas Bank
IOB posted low profits like BOM in this year. For Q2 profit was Rs.148.14 crore and in Q1 it was Rs.120.69 crore. Share price was very very low at Rs.11.45 last month.
Now the share price after the announcement inched towards Rs.13.24 today. Govt share holding was 95.84% with 1575,29,02,638 shares mainly due to huge capital infusion during last three years. Even if share price increases to Rs.15 Govt may get Rs.23,629.35 crore by selling entire stake.
Minus points of IOB
Deposits as on December 31, 2020, were Rs.234,116 crore. Mainly concentrated in Tamilnadu and AP state.
Advances were Rs.124,495 crore on 31-12-2020 with hardly 53% of deposits. To increase advances to 75% of deposits additional capital of Rs.4000 crore needs to be brought in by the purchaser. NPAs were also third highest at 12.18% of advances.
- Central Bank of India
No plus points for this bank as it has the highest NPAs at 16.30% of advances, a record in India. It has more presence in UP, MP, Bihar and Delhi area.
Last month share price was stagnant at Rs.14.90. Now it increased to Rs.15.60 today. Share holding of Govt was 89.78% with 527,50,14,715 shares. Even if share prices increase to Rs.18 Govt gets Rs 9,495 crore only which is not even 50% of IOB and BOI.
However, the Deposits as on December 31, 2020, were Rs. 323,873 crore and advances Rs.158,776 crore @ 49.02% of deposits. This is the lowest in banking industry with around 50% of deposits in investments. It is not an active banking and can be known as Narrow Banking. To get better profits to increase advances to 75% of deposit, the purchaser has to invest Rs.7500 crore additionally.
So with huge NPAs, low capital and less profits, will there be any one to purchase these four banks?