ICICI Bank looks to mop up 15,000 cr in equity capital this financial year

Private sector lender ICICI Bank is looking to mop up Rs 10,000-15,000 crore in equity capital this financial year (FY20), said two people aware of the matter. 

One of the modes through which the money could be raised is a qualified institutional placement (QIP). The bank has begun preliminary discussions with investment bankers but a definite time frame for raising the funds could depend on market conditions, said people in the know. 

The funds mopped up could be utilised primarily to aid the bank’s growth. The company will announce its results on Saturday; its annual general meeting is on August 9. In an emailed response, the bank has denied plans to raise money at this juncture. Last year, it raised Rs 1,140 crore by issuing bonds compliant with Basel-III on a private-placement basis.

Axis Bank, RBL Bank and YES Bank are other private sector lenders that may want to raise money this year. 

Earlier this year, State Bank of India’s board of directors have a nod for raising up to Rs 20,000 crore through various equity and equity-linked instruments. Despite a stable operating performance in the first quarter of FY20, analysts see near-term headwinds for the banking sector in the form of sluggish private capex cycle, delay in large corporate recoveries, and challenges in deposit growth.

ICICI Bank seems to be in better health now, given the receding concerns on asset quality, its well-executed strategy on retail business and best-in-class liability cost structure, according to analysts. 

“The bank has become more conservative as over 80 per cent of new loans are towards corporate entities rated ‘A-’ and above, and there’s an absolute cap on group level exposures. Ecosystem return on equity is the pivotal decision metric for any new loans,” said Suresh Ganapathy, head of financial services research at Macquarie Capital.

The bank’s total capital adequacy as on March 31, 2019, as per the RBI’s guidelines on Basel-III norms was 16.89 per cent and Tier-1 capital adequacy was 15.09 per cent, compared to the minimum regulatory requirements of 11.03 per cent and 9.03 per cent, respectively.

Its current account savings account, or CASA, rose 12 per cent year-on-year and formed 50 per cent of deposits and retail deposits forming 72 per cent, the bank’s FY19 annual report shows. “CASA growth is key to profitability, but the bank will need to invest in the franchise through branches openings and new product launches... we see a turnaround in its earnings ahead with fall in credit costs and margin expansion,” said CLSA in a recent note. 

ICICI Bank has been attempting to rebalance its portfolio given the high share of lending in the riskier segment in earlier years by shifting the composition of assets towards retail loans and a less risky corporate loan portfolio, a Kotak Institutional Equities research report noted. 

“The shift to the retail segment started in FY13 and the book has been growing quite strongly at about 20 per cent CAGR,” it said. The stock rose 1.6 per cent to Rs 415.5 on the BSE on Friday, up 52.1 per cent over its 52-week low of Rs 273.2.

In the past few months, more than 40 firms have hinted at raising money via QIPs; majority of them banks. They could potentially raise a combined Rs 50,000-70,000 crore.