Public sector lender Allahabad Bank today said it will raise Rs 2,600 crore in tier 2 capital this quarter to meet the growing need for funds as credit demand has massively overtaken deposit growth.
"I have a head room to mobilise Rs 2,600 crore capital this fiscal, and we will raise this in this quarter. It will be in the form of tier 2 capital," bank Chairman J P Dua said here after launching a cashless mediclaim policy by the bank's general insurance venture Universal Sompo Insurance.
Tier 2 capital refers to the secondary bank capital such as undisclosed reserves, general loss reserves, subordinated term debt etc and is a measure of its financial strength. Against this, Tier 1 capital is the more reliable form of capital which comprises the most junior (subordinated) securities such equity and qualifying perpetual preferred stocks issued by a bank.
Dua said though deposit is growing at over 15 per cent, credit offtake is much higher at 30 per cent. He has also requested for a capital infusion of Rs 1,000 crore from the government in the form of perpetual capital, though he is well-capitalised now with a CAR of 13.1 per cent.
On the net interest margins (NIMs), he said, despite hike in deposit rates, he expects to maintain it at 3 per cent in Q3, while this stood at 3.3 per cent in last two quarters. Banks NIMs are under pressure following the steep hike in deposit rates, being nudging by the Reserve Bank of India (RBI). Even as they increased deposit rates, banks were forced to keep the lending rates low, as credit offtake was sluggish till November.
In fact, at the last Bancon in December, RBI Governor D Subbarao had asked banks to bring down their NIMs so that cost of banking services can be more rationalised and made affordable to the larger public.