IDBI plans Rs 2,000-cr bond mop-up

State-owned IDBI Bank plans to raise up to Rs 2,000 crore through upper tier-II bonds to shore up its capital base and support its business.

Rating agency Crisil has assigned a rating of AA/Negative to the upper tier-II bonds. The rating on the bonds is driven by the bank’s weak financial risk profile, marked by a modest tier-I Capital Adequacy Ratio (CAR).

The tier-I CAR is expected to reduce further because of the bank’s growth plans and limited flexibility to enhance capitalisation.

The bank’s capitalisation is also under pressure with currently-adequate, but declining tier-I CAR. Further, the bank has limited flexibility to raise additional capital as the government’s stake in it is 52.68 per cent, just above the floor level of 51 per cent.

The bank is in discussions with the government to convert a part of its tier-I government bonds into equity, but the prospects of the same are currently uncertain. This move, if it succeeds, will have a positive effect on IDBI’s capitalisation levels and will enhance the bank’s ability to raise further capital.

IDBI’s capitalisation levels, reflected in the tier-I CAR, have reduced to 7.4 per cent as on March 31, 2008, from 11.9 per cent as on March 31, 2005, mainly on account of the bank’s organic and inorganic growth.