IDBI Bank plans to raise up to $300 mn to boost Tier-I capital

With market conditions for equity offering being adverse, IDBI Bank is cutting stake in strategic investments

With its tier-I capital adequacy ratio slipping below eight per cent, IDBI Bank plans to raise up to $300 million through Basel-III-compliant bonds by the end of March.

The government has stipulated for public sector banks, tier-I capital adequacy should be at least eight per cent. The Reserve Bank of India (RBI) has prescribed banks maintain overall cent capital adequacy of at least nine per cent.

B K Batra, deputy managing director of IDBI Bank, told Business Standard, “We want tier-I capital adequacy ratio to be above eight per cent for March.” The bank aims to raise $200-300 million by issuing tier-I bonds by the end of this financial year.

However, to raise money, the public sector lender wouldn’t engage in “fire sale” of its strategic investments, bank executives said, adding the focus was on aggressive recoveries that aided profits.

Last week, IDBI Bank’s board had given an in-principle nod to divestment of the bank’s shareholding in Stock Holding Corporation of India Ltd, in which it held 18.65 per cent stake.

At the end of December 2013, the Tier-I capital adequacy ratio was 7.93 per cent, while overall capital adequacy stood at 12.71 per cent.

IDBI Bank’s profitability has come under pressure due to high provisioning towards non-performing loans and restructured assets.

In November 2013, Chairman and Managing Director M S Raghavan had said for 2013-14, the bank needed additional capital of Rs 3,000 crore. This financial year, the government has infused Rs 1,800 crore into the lender; Rs 1,200 crore was to be raised through the qualified institutional placement (QIP) route. However, the poor response to State Bank of India’s QIP in January forced many public sector banks, including IDBI Bank, to keep their equity-raising plans on hold.

As of December 2013, the government’s stake in IDBI Bank stood at 76.5 per cent.

With market conditions for equity offering adverse, IDBI Bank began to consider cutting stake in strategic investments. In February, it sought to sell its stake in credit rating agency CARE. But it rejected the bids, as the price was below its expectations of Rs 900 a share. As of December 2013, it held 16.95 per cent stake in CARE.

Indicating the bank wasn’t desperate to sell strategic investments, Batra said there was very little time left this financial year. The bank wouldn’t push the sale, he said, adding it would be done in a calibrated manner.