IFC's stake will go up to 7.3% post infusion: Federal Bank's Srinivasan

"We have seen reasonably good growth and the outlook for growth remains quite constructive and positive. Now we must raise capital for funding the next wave of growth," said Shyam Srinivasan

Federal Bank has raised Rs 3,040 crore via a QIP issue this week and is awaiting regulatory approval to get another Rs 1,000 crore capital from International Finance Corporation. Shyam Srinivasan, MD & CEO of the bank, says the funds are to support organic growth, in a telephonic interview to Manojit Saha. Edited excerpts:

What is the reason for raising equity capital?

Shareholders have given us approval to raise up to Rs 4,000 crore as equity capital. We have had this approval for two years now. We had our internal triggers on raising capital and when our Common Equity Tier-1 (CET1) is around 13 per cent, we look for capital. We have seen reasonably good growth and the outlook for growth remains quite constructive and positive. Now we must raise capital for funding the next wave of growth. We are optimistic about the opportunities ahead. So we decided we will do a capital raise to the permissible limit of Rs 4,000 crore.

There are some existing shareholders who expressed interest in taking a higher share. Therefore, with the regulatory approval, we will do one-fourth of that through our existing shareholders via a preferential issue.

The other part was QIP, which has been completed with a capital raise of Rs 3,040 crore. We have received an encouraging response, with new and existing shareholders increasing their stake in the bank. We have long-only foreign institutional shareholders and domestic shareholders.

For the remaining Rs 1,000 crore, International Finance Corporation (IFC) has expressed interest and the board has approved.

What will be IFC's stake in the bank post the fund infusion?

At present, they are closer to 5 per cent. Once all the necessary approvals are in place, the stake will be closer to 7.3 per cent.

Is this capital aimed at supporting growth?

Yes, we usually raise capital once every four to five years, given the environment. The last time we raised money through a QIP was in 2017. Then in 2021, we had a preferential issue to IFC for Rs 900 crore. In the last 6 years, we have raised money once through a QIP and once through a preferential allotment. This time we raised money from both at the same time. This capital infusion will keep us growing for the next four years or so.

So you will not need any capital for the next four years?

Normally in a year, the profit is plowed back into the business. As long as the CET1 ratio is in line with the board-approved policy, we are fine.

What will be the bank’s CET1 and capital adequacy ratio post these infusions?

CET1 ratio will be 15 per cent-plus and the capital adequacy ratio will be 16.5 per cent.

Is there any plan to acquire any NBFC or MFI post this fundraise?

In our placement document in the QIP process, we said that it is for organic structural growth in the business we have chosen. We do not have anything on the horizon as far as acquisitions are concerned. If something comes up in the course of business, we will see. Right now the focus is on organic structural growth in the business we are in.

Some businesses are new for us, and we are small and growing in those businesses. Some of our new businesses are credit cards, microfinance, and commercial vehicle loans – which we started in the last two-three years. They are growing quite well but on a small base. We are gaining share in these businesses and see good growth opportunities.

Our core business is doing well and we will continue to grow it.

Overall, what kind of growth do you see in the current financial year?

This year we expect to grow in high teens, closer to 20 per cent. In Q1, Year-on-Year we grew 20 per cent. We have already said that we expect similar growth for the full financial year. That, at this point in time, looks very possible.

On the deposit side…

In Q1 again we grew 20 per cent on deposits. Generally, to manage this growth and to continue to grow, we want to match credit growth, that is our aspiration. We expect a deposit growth of around 18 per cent.