After offloading stakes in insurance companies, cash-strapped public sector banks are gearing up to raise money by diluting their stakes in mutual funds through initial public offerings.
The government, which announced a ₹2.11 lakh crore bailout for NPA-hit PSU banks, had instructed them to mop up capital by selling stakes in non-core assets before seeking financial support.
The seven public sector bank-sponsored mutual funds include Baroda Pioneer Mutual Fund, BOI Axa Mutual Fund, Canara Robeco Mutual Fund, IDBI Mutual Fund, SBI Mutual Fund, Union Mutual Fund and Principal (Punjab National Bank) Mutual Fund.
Some of these mutual funds have already sounded out investment banks to ascertain the market potential and prepare the groundwork for an IPO, said sources privy to the information.
Led by SBI Mutual Fund, the assets under management (AUM) of these seven mutual funds were up 11 per cent in the September quarter at ₹2.34 lakh crore against ₹2.10 lakh crorein the June quarter. The average AUM of the mutual fund industry was up 7 per cent at ₹20.94 lakh crore (₹19.51 lakh crore) during the same period.
Apart from the compulsion to raise capital, the confidence of public sector mutual funds to tap the IPO market comes from the good response received by Reliance Mutual Fund’s public offering, which saw the company raise ₹1,540 crore. The offer was subscribed 81.54 times, receiving bids for ₹88,023 crore.
Buoyed by the capital market appetite, the board of HDFC Asset Management Company, the sponsor of HDFC Mutual Fund, late last month cleared a proposal to initiate the process for filing of its initial public offering.
NS Venkatesh, CEO, Association of Mutual Funds in India, said it is quite natural for any organisation to divest stakes in non-core assets during difficult times and plough them into their core business.
With the Centre prodding banks to tap funds from internal sources, it makes sense for public sector bank-owned MFs to tap the IPO market or make private placements of their holdings, he said and added that an IPO makes more sense as ownership is distributed among general public investors.