IDBI Bank will continue to expand its loan book at a moderate pace of about 15 per cent annually in the next two financial years, despite fresh equity capital injection by the government and Life Insurance Corporation of India (LIC).
The public sector development financial institution, which morphed into a commercial bank, is constrained by a limited branch base and small share of low-cost deposits.
Its network has 993 branches and the share of current accounts and saving accounts (Casa) in total deposits of 19.67 per cent. Its peer public sector banks have over 2,000 branches each and share of Casa in excess of 30 per cent.
Any high growth in corporate and retail advances will only make the job of meeting the priority sector lending (PSL) target difficult. R K Bansal, executive director, said the year-on-year growth in advances may be about 15 per cent, with a focus on improving performance on the PSL front and share of low-cost funds.
The bank moved into a slow-growth lane in 2010-11 after R M Malla took over as chairman and managing director in the second quarter (of FY11), to bring about a balance in exposure to various asset classes. Its loan book grew 14 per cent in FY11, down sharply from 34 per cent in FY10 and 26 per cent in FY09.
Its annual credit growth was 16 per cent in December with advances close to Rs 156,217 crore.
The bank has drawn up capital expansion plans, involving conversion of existing bonds into equity shares and fresh investments. According to the capital enhancement plan, the existing Tier-I bonds (held by the government) will be converted into equity capital (Rs 2,130 crore). There is also a proposal for the government to make fresh investments of up to Rs 2,500 crore in IDBI Bank's shares via the preferential route.
The conversion and fresh capital issuance will be done at Rs 112.99 per share of Rs 10 each. Bansal said this will increase the central government's holding to about 71 per cent from 65 per cent now.
LIC will pump in about Rs 662 crore to pick up fresh equity at Rs 112.99 per share. It held 6.43 per cent stake at end of December 2011. Its stock closed at Rs 111.60 on Friday on the Bombay Stock Exchange.
Its Tier-I capital will improve to over eight per cent, up from 7.54 per cent in December 2011.
IDBI Bank may look at expanding its capital by issuing fresh equity to institutional investors in the later part of 2012-13, he said.
The overall capital adequacy of the bank was 13.53 per cent at end of December 2011.
The state-owned Life Insurance Corporation (LIC) has pumped in Rs 2,137 crore in four public sector banks through the preference share route.