Apologies folks. About to unleash a series of tweets on below topic. Pls feel free to ignore next many tweets (livemint.com/Industry/yVIiJ…)
Capital Scarcity
State Owned Banks (SOBs) are capital starved 1/n
State Owned Banks (SOBs) are capital starved 1/n
Non Performing Assets is gnawing away at their internals 2/n
Succor is far away via combination of performance, settlement, write-downs 3/n
SOBs’ owner, GoI, is capital scarce with alternate competing uses. SOBs recap requirement estimated ~ INR 90,000 crores 4/n
SOBs are sitting on vast prime real estate in premium localities across India and globally 5/n
These real estate assets are under-valued. True costs of these are not attributed to banks in an easy example of capital mis-allocation 6/n private/foreign banks fled down-town to suburbs years ago,SOBs still occupy down-town from inertia/absence of commercial pressure 7/n
Over last few decades there has been a strong growth of long-term investment market via insurers, pension funds, provident funds etc 8/n
These long term investors seek safe, steady assets to match longer term annuity and pay-out obligations they have contracted 9/n
Currently such assets are in short supply; principally provided by GoI long dated securities alone 10/n
In mature mkts real estate rentals (commercial, retail) constitute a big market/share of asset allocation of these long investors 11/n
India this is evolving due to insufficient quality paper available.REITs are now beginning to be listed, avlbl to wider investors 12/n
Private players like Blackstone are investing funds in snapping up prime commercial spaces for their rental yields 13/n
GoI could capitalize on under-valued, non-core real estate assets of banks in the form of corporate,regional,zonal,branch, other prop. 14/n
Can be done via revaluation of real estate portfolio to reflect current values. 15/n
Such portfolio could be transferred to a “Land Bank of India” (LBI) under a Sale and Lease back 16/n
LBI cud be capitalized by GoI for this purpose with say Rs.10,000 crore corpus.LBI can purchase land asset worth this amt from SOBs 17/n
SOBs can be charged market or slightly discounted rentals to promote market aware behavior from banks 18/n
The rentals could be securitized and sold to investors. These long dated papers are likely to be attractive to long term investors 19/n
Estimation of under-valued real estate with SOBs requires details, it cud easily run into tens of thousands of crores in metro cities 20/n
A large part of the re-capitalisation drag of ~ Rs.90,000 crores could be funded in this off-balance sheet fashion by GoI 21/n
It will also lead to more market aware behavior from SOBs; release of prime assets leading to softening rates via asset reallocation 22/n
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