Banks to raise Rs 50K cr

Issuances by State Bank of India and ICICI Bank, the country's two premier lenders, are only two in a series of share and debt issuances from the Indian banking sector, which is racing against time to bolster its capital, as stipulated by the global banking guidelines, Basel-II.

Banking observers say the amount of capital (both debt and equity) required could be as high as Rs 1.5 lakh crore, if one considers the amount required to meet the rapid growth in bank credit, which stood at 28 per cent and 35 per cent in the last two financial years.

By March 2008 alone, Indian banks require Rs 50,000 crore to meet the stiff capital requirements. Basel-II rules require banks to adjust their capital requirements according to the risks inherent in each bank's portfolio of loans and investments.

Under the new guidelines, banks have to provide for operational risks, which was not the case under Basel-I norms. The impact of this would be around 50 basis points. Basel-II norms make it mandatory for foreign and Indian banks with overseas branches to follow the norms before the deadline of March 2008.

SBI and ICICI Bank have announced plans to raise capital worth Rs 35,000 crore, which includes share and debt issuances.

"The banking system is likely to witness 20-25 per cent growth in credit during the current financial year. The new guidelines for capital adequacy by the RBI, coupled with strong demand for credit from corporate sector, necessitates that banks adopt a proactive approach towards capital raising," said Kalpana Morparia, joint managing director of ICICI Bank.

HDFC Bank, UTI Bank and a clutch of other public sector banks like Punjab National Bank, Bank of Baroda, Bank of India and Union Bank of India are also expected to announce capital mop-up plans in the coming weeks.

Says Aditya Puri, managing director of HDFC Bank: "We are examining the need to raise capital. Our last equity issue was around 3 years ago. The bank has headroom to raise fund through the Tier-II route."