Macquarie Research in its note ‘Nationalisation Looms’ by Suresh Ganapathy says: “The total capital needed at least would be around $2.5-3 billion over the next 12-18 months, even after factoring in operating profits for the next six quarters.”
“In our view, if the bank is unable to raise money in the next six months, it poses a grave danger to the financial system. When a bank collapses, the clearing system comes to a halt and hence, the contagion impact of a bank collapse is far higher than that of the collapse of non-banking financial companies
in our view.”
Nomura has maintained a neutral rating on the stocks, with a target of Rs 63 as it feels the board outcome on bids is negative, adding that the $1.2-billion bid is unlikely to go through, given the legal cases.
“We view this as a negative development, as the $1.2-billion bid is unlikely to go through, given the legal cases (including alleged bankruptcy against Erwin Singh Braich), which would put into question the availability of the $500-million bid as well as the rest of $300 million bids, as could have been conditional on raising a large part of the required capital,” Nomura Research added.
“There has been very little resolution in the large stressed exposures, while large provisioning without a capital infusion will lead to breach of capital limits soon,” said Nomura.
IDFC Securities in its reports has raised several flags and noted that “they don’t know if Citax will pass the Reserve Bank of India’s ‘fit and proper test’. Given that nothing definitive has come out regarding the bank’s capital raise and many investors from the list have backed out, we reiterate ‘underperformer’. The uncertainty and delay in capital-raise will weigh on the bank’s ability to provide for bad loans, raise and retain deposits, and could also lead to further credit rating downgrades.”
ICICI Securities in its report has maintained its ‘hold’ recommendation on the stock and has noted: “Key will be capital infusion. While we have assumed $1.2 billion versus the bank’s communication of bids of $2 billion, even somewhere close to $1 billion would be viewed fairly positively in the current environment.
“The bigger task after capital-raising would be to reform the bank into a transactional, granular-led model over the medium term. Many challenges remain.”