Andhra Bank plans Rs 800cr fund raising; may use QIP route

In an interview to CNBC-TV18's Sonia Shenoy and Reema Tendulkar, CVR Rajendran, CMD of  Andhra Bank spoke about the bank's fund raising plans.

Below is a verbatim transcript of the interview

Sonia: The banking secretary said that the divestment process will begin very soon. Have you had any interactions with the government on how much they are looking to divest. The government holds about little more than 60 percent in Andhra Bank, what could the quantum of divestment be and are there any kind of timelines etc?

A: So far we have not heard anything from the government. We need about Rs 800 crore of additional capital for the current year which we have intended with the government. We have to go to the public and raise some money, about 4 percent dilution of our government holding can help us in getting this Rs 800 crore. Every percent dilution we get about Rs 200 crore at the current market prices.

We thought we will go through the qualified institutional placement (QIP) route because that is a very small issue to raise Rs 800 crore, it will be very effective and pricing will be better in QIP as it be nearly to the market price. If you go through the rights issue or follow on public issue naturally it has to be at a discount to the price at which the market is giving to the Andhra Bank share today. So we will prefer a QIP route if it is a smaller issue.

If we have to go with follow on public issue, probably we will go for dilution of the entire 9 percent which is permitted to bring it to 51 percent for the government then the issue could be around Rs 1800-2000 crore size which is worth going for a follow on public issue.

Reema: The recent comment suggests that a QIP would come in later, the first preference would be to raise money from the retail shares. So would you then do an FPO of 9 percent and raise Rs 1800 crore?

A: If the government permits certainly we will go for 9 percent because it will give us the requirement of capital for the next two years, current year as well as next year we will be in a position to bring down the government holding to 51 percent and raise about Rs 2000 crore money which will support our growth for the next two years.

Sonia: Also there are many statements that the banking secretary made where he said that he is looking to bring the PSU banks under the Companies Act. There will be more independent directors on the boards of PSU banks. There will be a separation of the chairman and MD post etc. How will this really benefit not just a bank like yours but also the sector as a whole?

A: These are all on the lines of the PJ Nayak Committee recommendation. Except the dilution below 51 percent which the government is not considering, all other recommendations of the PJ Nayak Committee is being considered. We are treated as a company and we are treated at par with the private sector banks and if the government is not appointing the board of directors out the board and only professional directors are joining the board, certainly the performance can improve substantially and we will welcome this step.

Reema: Last time you indicated that collections of farm loans have become a problem and without proper guidelines this whole exercise will be futile. Have you heard anything from the Andhra Pradesh or from the Telangana government or perhaps even from the Central Bank?

A: Central Bank has not come out with any decision. Andhra Pradesh as well as Telangana governments have applied for restructuring the crop loans given during the last year. Out of the 656 mandals in Andhra Pradesh, about 548 mandals are affected by some kind of natural calamity for which they are asking for rephasement. It should have been done within 90 days of the calamity period which was not done at that point of time because the political parties have assured the waiver of the loans.

Now the political parties are asking the RBI to give permission to restructure these loans, that proposal is still pending with the RBI. Even if the restructuring comes that is applicable only for the crop loans given during that period which could be about Rs 6000-8000 crore out of almost Rs 55000 crore of loans outstanding in both the states together. The remaining loan ought to be repaid by either the government or the farmers who borrowed from us. As there is no decision taken by the government yet, neither the farmers are paying the loans today nor the government is paying the loan. These loans are slowly converted into NPAs.

During the current quarter itself substantial amount of loans are getting converted into NPAs for all the banks. We have raised our concern and we have written to the chief secretary and we met the CM as well as the chief secretary and told them our concerns on these loans becoming NPA. The loans are becoming NPL and they are not entitled to even the infrastructure subvention available from the central government. That is another problem which is coming up. I think the government will take a decision in the next two three days and once the cut off date is announced and the modalities are announced, probably we can look for some more recoveries in the agriculture loans.

Sonia: When you say some more recoveries can you give us any kind of ballpark figure on how much relief it could bring about?

A: For my bank, about Rs 7000 crore agriculture loans will become NPA if the government is not coming out with a clear guideline within the next three quarters. These are all the loans falling due in the second and third quarter. If they are not coming out with a clear guideline, this entire Rs 7000 crore will be converted into NPA and requiring provision and increasing gross NPA and net NPA numbers for the bank.

I think government is aware of the problem, government is also keen on sorting out the problem because so far the rains have not touched Andhra Pradesh. If the rains have started the kharif season will start and the demand for fresh loans will come up. Until the previous loan is paid, banks will not be in a position to release fresh loans to the farmers.

So to avoid any such agitation from the farmers at this point of time, government is working out the modalities to ensure that the scheme is announced before the date and government will say how they are going to repay the loan and government will also decide the cut off date under the eligible loans which will be announced for the loan waiver. Remaining loans I think farmers will come forward and pay at the earliest.

Reema: The government so far has indicated that they would like to be majority shareholders. If you all do that FPO you will bring down your stake to 51 percent and raise that Rs 1800 crore. What happens after two years or perhaps in the next one year if you do require additional capital?

A: Then rights issue is the only way, if the government has to maintain 51 percent and we need further capital there are only two ways, either I have to generate sufficient capital by increasing my profitability, that should also be a possibility. Banks can become much more profitable if the economy is doing well and the internal generation itself may be sufficient to fuel the growth for quite a long time to come. Otherwise if the growth is much bigger than the ploughed back capital, then necessarily we have to come out with the rights issue to fund the growth.

Sonia: The banking secretary told us that the ministry is working on a stake sale strategy for each PSU bank case by case in terms of recapitalization. Have you had any kind of interactions with the government or the ministry on what the quantum of funds could be for recapitalizing a bank like Andhra Bank?

A: Earlier we had submitted a proposal to the government about our capital requirement for the next five years and also said that we will go for QIP issue for raising about Rs 400 crore during the current year believing that around Rs 200-300 crore may come from the government because there is Rs 11200 of allocation and we will increase our profitability to a certain extent which will be sufficient to take care of the current year's requirements.

Now if the QIP is not permitted and the government is permitting us to go below 58 percent up to 51 percent, probably we will look at the option of going for a follow on public issue and we will write to the government and take the permission and work out the strategies for it.

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