Big Indian banks and financial institutions are taking advantage of the improving perception of the country’s economy to raise funds from both domestic and overseas markets.
Over the past few months, State Bank of India, Central Bank of India, Canara Bank, HDFC Bank, and Export-Import Bank of India have raised funds or plan to.
The reasons for this include the need to strengthen the capital for meeting the Basel III international regulatory framework aimed at improving the banking sector's ability to absorb shocks from financial and economic stress, and also to expand business.
A senior analyst with a brokerage, who did not want to be identified, said, “Banks are raising equity capital as valuations have increased thanks to the improved perception of the economy and the change of government. Many public sector banks are low on capital to meet the Basel III requirement. So, we are likely to see more IPOs and FPOs (follow-on public offers) going ahead.”
State Bank of India is planning to raise additional equity share capital up to ₹15,000 crore by a public offering or rights issue or private placement, including qualified institutions placement and global depository receipt. Similarly, Central Bank of India proposes to raise additional equity capital by converting the perpetual non-cumulative preference shares of ₹1,617 crore held by the Union Government into equity shares.
Ramesh Singh, General Manager, Central Bank of India, said, “Our bank’s Tier-I capital will go up 10-15 basis points after the preferential allotment of shares to the Government. Currently, the bank’s Tier-I capital is at 7.18 per cent. The Government’s stake in the bank will go up from 79 per cent to 82 per cent.” This will not only strengthen the capital base, the bank can expand its loan portfolio.
On Thursday, HDFC Bank raised about ₹2,000 crore in India through a qualified institutional placement (QIP) at ₹1,067 per equity share. The bank also raised about ₹7,800 crore through American Depository Receipts at an issue price of $57.76 per ADR.
The analyst quoted above said: “While private sector banks have adequate capital to meet Basel III norms, they are raising more to get ready for the next phase of growth. HDFC Bank’s tier-I capital will be in excess of 13 per cent, so they will have enough capital to grow at a higher rate.”
VS Krishna Kumar, MD & CEO, Canara Bank, said depending on the market conditions, his bank plans to mop up about ₹3,000 crore via qualified institutional placement and additional Tier-I capital in the current quarter. The bank is already in the market to raise ₹1,500 crore through additional Tier-I perpetual bonds by way of private placement.
Export-Import Bank of India, on the other hand, wants to extend a line of credit to other countries and provide overseas investment financing for India Inc. It has raised $500 million by issuing unsecured notes to overseas investors. The development finance institution mopped up the resources at a coupon of about 2.75 per cent.