Banks raise Rs 8000 cr debt to shore up capital

In the last one month, banks have raised over Rs 8,000 crore of Tier-II capital to shore up their capital adequacy and to meet credit growth.

HDFC Bank raised Rs 200 crore via book-building interest rates ranging from 7.65 per cent to 7.75 per cent per annum for 111 months. This was to augment its capital adequacy ratio, say analysts.

Meanwhile, Housing Development Finance Corporation today entered the market to raise Rs 500 crore of debt at 7.65 per cent. The funds will be raised through 10-year bonds to meet the largest mortgage lenders' need for resources, a debt dealer said.

Indian Overseas Bank also raised Rs 250 crore at 7.60-7.65 per cent for shoring up its capital adequacy. UTI Bank is also mulling to raise up to Rs 1,000 crore through unsecured redeemable debentures in tranches to raise fresh tier-II capital.

"Tightness in liquidity made banks to raise tier-II resources at costlier rates," said a chief dealer with a private bank.

He said given the robust credit offtake, banks are finding it difficult to meet their funds requirements with mobilising deposits becoming difficult. Consequently, banks have to raise money at such higher rates.

Many banks have tapped the capital market with follow on public offers. This gives them additional head-room to raise tier-II capital, he added. Another reason being that rates are showing an upward bias with yields having inched up by over 65 basis points since July 2005.

IDBI Bank raised Rs 400 crore to fund its expansion plans and augment its capital adequacy ratio. It raised the resources via non-convertible debentures of five and 10 years at 7.35 per cent and 7.70 per cent respectively.

After having converted into a banking company last year, IDBI Bank is still building its net worth. Analysts say IDBI Bank relatively does not have sufficient tier I capital to fund its growth and credit requirement.

Consequently, there is less headroom for the bank to raise tier II capital. Hence it is continuing its tradition of raising resources at higher cost.

Banking behemoths State Bank of India (SBI) and ICICI Bank raised tier-II bonds recently to meet the robust credit growth. State Bank of India, the country's largest bank, closed an issue of Tier-II bonds recently after raising Rs 3,283 crore, merchant bankers said.

The SBI issue, which opened on November 29, 2005, had a core size of Rs 1,000 crore with an unspecified greenshoe option.