Karnataka Bank eyes second round of equity infusion in the next six months

After mobilising Rs 800 crore in equity capital from institutional investors, Karnataka Bank will look at a second round of capital raising (up to Rs 700 crore) in the next six months, subject to market conditions.

The bank would keep options open, including preferential and rights issues, for raising fresh equity capital in the second tranche, Srikrishnan H H Sarma, its managing director and chief executive, told Business Standard.

The proceeds of the issue will be primarily used to meet the needs of the growing business of the bank, including long-term capital requirements. The Mangaluru-based private lender is looking at 17-18 per cent year-on-year growth in assets for the medium term.

On September 22, 2023, its board of directors gave the nod to raise capital up to Rs 1,500 crore, in one or more tranches, through preferential issue, rights issue, Qualified Institutional Placement (QIP) or any other permissible mode. Further, out of which in the first tranche, the bank is issuing up to 33.40 million shares (face value of Rs 10 each) on a preferential basis to HDFC Life Insurance, Bajaj Allianz Life Insurance, Quant Mutual Fund, Bharti AXA Life Insurance, Bajaj Allianz General Insurance.

The shares are being issued at a price of Rs 239.52 per equity share (including a premium of Rs 229.52 per share), amounting to an aggregate of up to Rs 800 crore. The equity issue price was lower than the closing price of Rs 241.7 per share on the BSE on September 22, 2023.

Its capital adequacy stood at 17 per cent, with Tier-I of 13.8 per cent at the end of June 2023.

The bank would maintain a 17 per cent overall capital adequacy level at all times to maintain a robust profile and tap business opportunities in a timely manner, Srikrishnan said.

The current equity capital infusion would incidentally also help to retire high-cost debt capital (Tier-II bonds) which comes up for redemption in the second half. The Tier-II bonds in excess of Rs 700 crore are up for redemption, he added. The coupon on some of these Tier-II bonds is about 12 per cent.

While the bank has guided for 17-18 per cent growth in credit, going by Reserve Bank of India data, its pace of loan growth has been much lower than the growth rate clocked by the banking system. Karnataka Bank’s advances grew by 5.36 per cent year-on-year to Rs 61,489 crore at the end of June 2023, as against the system's growth of 16.2 per cent year-on-year.