Mid and small-sized private banks are knocking on the doors of institutional investors and private equity funds to raise money amid declining capital adequacy ratios. The fund raising programmes are also triggered by the need to cut promoters' shareholdings in some of these banks and finance business growth in the coming quarters.
While a few banks have already raised funds through the sale of shares, at least half a dozen more equity issues are in the pipeline, according to industry analysts and bankers.
“We are looking to raise about Rs 1,000 crore through qualified institutional placements. This would improve our capital adequacy ratio. The issue would open in the next couple of months,” said V A Joseph, managing director and chief executive, South Indian Bank. The Thrissur-based private lender's capital adequacy ratio declined to 14.01 per cent in 2010-11 from 15.39 per cent a year ago. The new capital adequacy norms, popularly known as Basel III guidelines, propose higher capital requirement for banks with more emphasis on equity capital. Currently, the Reserve Bank of India (RBI) mandates banks to maintain a capital adequacy ratio of nine per cent.
| SHRINKING FUNDS | ||
| Bank | Fund | |
Capital
Adequacy
Ratio as on
31-Mar
2011(%)
Bank
Credit Bank
[$500 mn]
South Indian Bank's local rival, Catholic Syrian Bank, also plans to raise about Rs 350 crore in the current financial year. According to Managing Director and chief executive V P Iswardas, the lender would issue Rs 150-crore tier II bonds and raise the remaining Rs 200 crore by selling shares to private investors and institutional bidders.
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The fund-raising programmes would also help some of the private lenders reduce promoters' stake in the bank. RBI insists promoters' shareholdings in private sector banks should come down to 10 per cent.
Last month, shareholders of Mumbai-based Development Credit Bank (DCB) approved the lender's plan to raise up to Rs 300 crore through a share sale. Promoters currently hold 23.08 per cent stake in DCB and the share sale would lead to a dilution of their stake.
“We have been working with our investors to raise funds. The market has been tough so far. We will wait for sentiments to improve. We are looking to raise the money in the next three to six months,” said Murali M Natrajan, managing director and chief executive officer, DCB.
According to Romesh Sobti, managing director and chief executive, IndusInd Bank, the bank plans to raise funds to grow its balance sheet. “Incidentally, that will also lead to a dilution in promoters' holdings. But our capital-raising programme is always driven by balance sheet requirements,” he said. IndusInd Bank, in which promoters currently hold 19.54 per cent stake, plans to raise funds in the next financial year.
Other private lenders like City Union Bank and YES Bank also said they were exploring fund-raising opportunities, both in domestic and overseas markets. While City Union Bank aims to raise about Rs 300 crore through qualified institutional placements, YES Bank is looking to mop up $500 million, or around Rs 225 crore, through the issue of American depository receipts, global depository receipts and institutional placements.
Earlier this year Dhanlaxmi Bank had raised around Rs 290.53 crore through preferential allotment of equity shares. ING Vysya Bank had also raised Rs 970 crore through preferential allotment and qualified institutional placements. Karnataka Bank and Karur Vysya Bank have raised funds through rights issue of shares.