Shares of four public sector banks (PSBs) -- Bank of India (BoI), Central Bank of India (CBoI), Indian Overseas Bank (IOB) and UCO Bank -- rose between 2.95 per cent and 6.25 per cent on Thursday on capital infusion aggregating ₹14,500 crore by the Centre.
The PSBs informed the exchanges about the Government’s capital infusion on Wednesday. CBoI, IOB and UCO Bank are under the Reserve Bank of India’s prompt corrective action.
IOB shares rose the most in percentage terms, closing at ₹17, up 6.25 per cent on the BSE. The Bank has received capital infusion of ₹4,100 crore; and the stock of CBoI, which received ₹4,800 crore, closed at ₹17.15, up 4.89 per cent. UCO Bank shares gained 3.91 per cent at ₹11.42, as the bank received ₹2,600 crore. BoI shares closed at ₹69.85, up 2.95 per cent. The bank has received ₹3,000 crore. India Ratings and Research (Ind-Ra) opined that capital infusion through non-interest-bearing bonds would bolster their regulatory capital levels, but their lower intrinsic values would not strengthen their tangible equity by as much.
Intrinsic value
Karan Gupta, Associate Director, Ind-Ra, said: “The agency understands that these long-tenor securities would be factored at par value rather than the discounted value in the banks’ balance sheet. These banks have weak tangible buffers or a weaker ability to build and maintain capital buffers.”
Ind-Ra believes the intrinsic net worth of these instruments could be lower by more than 50 per cent at the outset than similar maturity government papers in the market. The illiquid, non-trading nature of these securities, with maturities ranging from 2031 to 2036, could add to the discount.