HDFC Bank, the country’s second largest private sector lender, said on Monday it will be raising Rs 10,000 crore from the market over the next one year. The bank’s board has given approval to sell fresh equity shares in both domestic and foreign markets.
In a notice sent to the BSE, the bank said, “The proposed issue is to be made by creating, issuing, offering in the course of one or more public or private offerings in domestic or one or more international markets, equity shares and/or equity shares through depository receipts and/or securities convertible into equity shares at the option of the Bank and/or the holders of such securities, and/or securities linked to equity shares and/or any instrument or securities representing equity shares and/or convertible securities linked to equity shares.”
The notice also mentions that a final approval of the bank’s shareholder is needed which will be granted at the annual general meeting of the bank which is on June 25.
Experts believe the bank’s decision to raise fresh capital augurs well for the lender as it is in the growth phase right now and the amount can be deployed to chart out an aggressive growth plan.
Vaibhav Agrawal, vice-president, research, banking, Angel Broking, said the bank seems to be planning for the next phase of growth and that is the rationale behind raising capital. “ICICI Bank and Axis Bank had raised capital in the past so a capital raising from HDFC Bank was expected. Moreover, all private sector banks, unlike public sector banks, also like to have a buffer between the existing minimum capital requirements. And these additional funds can help in achieving a comfortable buffer.”
According to Basel-III norms, the Tier-I capital or core capital has to seven per cent of risk weighted average. Ananda Bhoumik, senior director, India Ratings, said, “HDFC Bank traditionally also always had few percentage points (three-five per cent) higher Tier-I capital than the minimum prescribed limit. Now the norms require banks to maintain Tier-1 capital at seven per cent more than the six per cent earlier. And they have a Tier-I capital at 11.8 per cent at the end of the last financial year. This additional capital will also help them in maintaining a healthy margin as always.”
Experts agree that since the bank has not given a clear indication about the method to raise capital, it will be a mix of both domestic and foreign, subject to approvals.
Several public sector banks which had shelved their capital raising plans have started reviving it now. As a result, it is very likely that in this financial year, the equity market might be crowded. But given HDFC Bank’s valuations, it is likely that the lender will not face a real challenge, analysts said.