IDBI plans rights issue to bolster capital base

Funds needed to maintain capital adequacy ratio.

IDBI Bank is exploring an option to raise fresh equity through a rights issue for bolstering its capital base for business growth.

The bank is open to float a rights offer, subject to government approval, IDBI Chairman and Managing Director Yogesh Agarwal said in a response to a shareholder’s query at its annual general meeting here today.

“We need capital to grow. Rights issue is definitely on the cards. We are hopeful of bringing the rights issue by the end of the financial year,” Agarwal said.

He said the funds will be required to maintain a capital adequacy ratio of around 12 per cent. Agarwal, however, declined comment on the amount of capital infusion the bank has sought from the government.

The government would also have to participate in the rights offer to maintain its present stake of 52.67 per cent in the Mumbai-based public sector lender.

A senior IDBI official said the equity raising plan (rights offer) is already with the finance ministry.

The government has maintained that it would infuse additional capital in the banks it owns to keep the capital adequacy at least at 12 per cent. IDBI Bank’s capital adequacy at the end of June stood at 12.30 per cent.

There is a precedent of the government subscribing to the rights issue of a state-owned bank. It had contributed over Rs 10,000 crore in the State Bank of India’s rights issue at the end of March 2008. The Centre issued special bonds to SBI as its contribution, instead of providing cash. SBI is planning a second rights issue, to raise around Rs 20,000 crore.