With the demand for credit expected to shoot up, private banks are bolstering core capital. Seven of them are in the process of raising a cumulative Rs 10,500 crore in equity to fund expansion, which, in some cases like Axis Bank’s, includes entry into mutual fund, private equity and wealth management businesses.
Although credit growth has fallen to 13.24 per cent in the 12 months to September 11, bankers expect it to pick up in the second half of this financial year. Bank chiefs recently told the Reserve Bank of India that by the end of March, the growth could rise to 20 per cent over last year.
“More than their immediate needs, banks are looking to tank up for the future,” said an investment banker who worked on Axis Bank’s $720 million (Rs 3,456 crore) institutional investors and global depository receipts issue. The country’s third largest private sector lender is raising another Rs 444 crore through a preferential issue of shares to Life Insurance Corporation and New India Assurance.
| CAPITAL RAISING BY PRIVATE BANKS | ||
| Bank | Amount | CAR |
| HDFC Bank | 4000.00 | 15.40 |
| Axis Bank | 3900.00 | 15.28 |
| Yes Bank | 720.00 | 17.63 |
| IndusInd Bank | 480.00 | 12.14 |
| ING Vysya Bank | 415.00 | 12.55 |
| Development Credit Bank | 300.00 | 13.70 |
| Lakshmi Vilas Bank | 265.00 | 10.02 |
| Total | 10495.00 | |
| Amount in Rs crore; CAR in % Capital adequacy ratio as of 30 June, 2009 Source: Banks | ||
While the bank has comfortable overall capital adequacy, the banker said the Axis management was keen that the bank’s Tier-I capital adequacy ratio should not dip below 9 per cent. RBI mandates 9 per cent as the minimum CAR, with a minimum Tier-I capital ratio of 6 per cent.
Like Axis Bank, HDFC Bank, which expects to grow its loan book at over 20 per cent during the current financial year, is well capitalised. The country’s second largest private lender is expected to boost capital when its promoter, Housing Development and Finance Corporation, converts the warrants issued to it last year into shares.
“We decided to subscribe to these warrants to maintain our ownership level in HDFC Bank at or around 23 per cent and offset possible dilution after the merger with CBoP (Centurion Bank of Punjab),” said an HDFC executive.
Others are tapping the market, now that the sentiment towards the the financial sector has improved. “Banks had not gone to the equity markets for the last 2-3 years," said IndusInd Bank Chief Executive Officer Romesh Sobti. He expects the bank to grow at 25 per cent a year.
ING Vysya Bank, which recently raised Rs 415 crore through a preferential issue and Qualified Institutional Placement, plans to focus on retail loans. “The idea is to have building blocks ready to accelerate our growth plan for our retail portfolio, including loans to small and medium enterprises,” a spokesperson for the bank said. The bank, which is very active in southern India, has embarked on a plan to increase its national footprint. It opened 56 branches last year and intends to add another 60 this year.
Loss-making Development Credit Bank (DCB) has taken shareholder approval to raise Rs 100 crore through the QIP route and another Rs 200 crore from a rights issue. “Although our loan book is growing at a slow pace, we are planning to double our asset book over the next three years,” said DCB Managing Director and CEO Murali Natarajan.
“Credit growth has to pick up sooner or later. We want to be prepared for it,” said Rajat Monga, group president- financial markets and chief financial officer of YES Bank. The bank intends to raise Rs 720 crore through a QIP issue this financial year.
There are expectations of a rise in bad debts in the coming months, which would require more provisioning. Analysts however said delinquency levels would fall and credit demand rise with the improvement in the economy.
