Axis Bank needs Rs 12,000-cr equity injection by FY18

New generation bank, which raised Rs 5,540 crore through equity offering in Jan 2013, will require two-three round of in next four years

The private sector lender Axis Bank needs a capital injection of Rs 12,000 crore by FY2018 to conform to Basel-III norms for capital adequacy, according to India Ratings & Research.

The new generation bank had raised Rs 5,540 crore through equity offering in January 2013. The bank’s above-average capitalisation (FY13: Tier 1 ratio 12.23 per cent) is an important credit factor, given its relatively high loan concentration and above-average growth plans.

The bank moderated pace of growing loan book in last two years (FY12 and FY13). It loan portfolio rose by 16 per cent in FY13, down from 19 per cent in FY 12. This helped to consolidate credit profile, conserve capital and maintain a stable funding profile, it said.

Rapid loan growth over FY06-FY11 (compounded annualised growth rate of 45 per cent) had put pressure on bank’s capitalisation and funding profile.

Referring to liability strategy of the bank, rating agency said the reduction in the share of high-cost bulk deposits in total term deposits should help redress the volatility in ABL’s funding profile. The share of high cost deposits dipped to 58 per cent in FY13 from 63 per cent a year ago. The private bank has also managed to improve its low-cost deposit ratio to around 44.4 per cent in FY13 from 41.5 per cent in FY12. This could further improve given the expanding branch network. The bank opened 325 new branches in FY13 taking the total to 1,947 branches.

Pointing to stress from the problems in infrastructure sector, India Ratings said Axis Banks continues to face asset quality challenges. Its gross non-performing assets rose to 1.19 per cent at end of September 2013 from 1.06 per cent at end of March 2013 and 0.94 per cent in March 2012. It could see further deterioration from cyclical and infrastructure sector exposures.