ICICI Bank to raise up to Rs 15,000 cr to support business growth

Private sector lender ICICI Bank plans to raise upto Rs 15,000 crore to support business growth and create a buffer to absorb any shocks from economic disruption caused by the Covid-19 pandemic.

Its Board of directors approved a plan for raising of funds for an amount aggregating up to Rs 150 billion in one or more tranches, by issuing securities, through one or more permissible mode.

It may use modes like private placement, preferential issue, qualified institutions placement, follow-on public offering or a combination of them. The fund raising is subject to shareholders’ approval through a postal ballot process and regulatory approvals, the bank informed BSE.

Shares of the lender closed 1.81 per cent lower at Rs 368.90 on the BSE.

The lender joins a slew of other private sector banks who have undertaken a similar exercise. Recently, Axis Bank got its board’s approval to raise Rs 15,000 crore through a variety of instruments to shore up its capital base amid the Covid-19 disruptions.

Among peers, country’s largest private sector lender, HDFC Bank, has received its board’s approval to raise Rs 50,000 crore through additional Tier-I and Tier-II bonds. Similarly, IDFC First Bank in May said it plans to raise around Rs 2,000 crore fresh equity capital from investors, including promoters.

Another private sector lender, Kotak Mahindra Bank has raised more than Rs 7,000 crore via qualified institutional placement (QIP) in May this year. Mortgage lender HDFC is also in process of obtaining shareholders approval to raise equity funds for its business plans and also for group entities.

ICICI Bank has already raised Rs 3,090 crore by divesting stake in two of its insurance subsidiaries. It sold 1.5 per cent stake in ICICI Prudential, its life insurance arm, for Rs 840 crore and 3.96 per cent stake in ICICI Lombard for Rs 2,250 crore. The rationale provided by the lender for the divestment of stake was strengthening of balance sheet in view of the pandemic, which is expected to worsen the bad loan problem.

The private lender had a capital adequacy ratio of 16.11 per cent at the end of March, 2020, which is well above the regulatory requirements. But the bank had indicated that due to the uncertainties arising out of the pandemic, it would strengthen its balance sheet further.

Analysts have said many banks have been monetizing part of stake in subsidiaries and some strategic holding to enhance capacity to absorb shocks from the economic disruption caused by Covid-19 pandemic. Banks will face heightened stress due to bad loans.

Banks have made significant provisions due to Covid-19 in the March quarter but given that the situation is deteriorating and the moratorium on repayments has been extended, they may need to make more provisions in the future.

For bad loans and coronavirus-related disruptions, the bank made provisions of Rs 5,967 crore, up 9 per cent from Rs 5,451 crore in Q4FY19. Compared to the previous quarter’s figure of Rs 2,083 crore, provisions were up almost 186 per cent.

Rating agency Fitch has said Indian banks are likely to require at least $15 billion in fresh capital to meet a 10 per cent weighted-average common equity Tier-I ratio under a moderate stress scenario. The amount could rise to about $58 billion in a high-stress situation where the domestic economy fails to recover from Covid-19.

The bulk of the stress is expected to come through in FY22 due to the 180-day regulatory moratorium on the recognition of impaired loans, which will delay the full recognition of stress in the current financial year, rating agency said.

Analysts and rating agencies have indicated that Indian banks would need more capital to tide over these uncertain times with the possibility of non-performing assets (NPAs) rising in the near future owing to huge disruptions in economic activity due to the spread of the virus and the subsequent lockdown.