IDBI plans raising Rs1500cr via tier-II bonds

Industrial Development Bank of India will raise up to Rs 1,500 crore through lower tier II bonds in the next 12 months to support credit growth and basel II norms and supplement for capital bonds that will be redeemed over next few months.

Though present capital base can support 20 per cent annual growth in assets for next two financial years, the bank will like to provide adequate cushion for business expansion and Basel II compliance, a senior IDBI official said.

Mumbai-based bank with mandate for development finance has outstanding tier II bond portfolio of Rs 5,000 crore. The part of this bond portfolio will mature soon. The new bonds will which may be issued in tranches depending on the business requirement over a year, he said.

The lower tier II bonds will have tenure ranging between 5 and 10 years and will carry slightly higher coupon rate than debentures. CRISIL has assigned AA+ rating to the proposed tier II bond issue.

The rating reflects bank's high strategic importance to its owner, the government, and expected improvement in market position and resource profile especially after its conversion into a financial institution into a commercial banking entity. It also takes into account merger of IDBI Bank, erstwhile private bank and United Western Bank with IDBI.

The public sector bank has raised tier II capital of about Rs 1,418 crore till date in the present financial year. The bank is adequately capitalised with CAR of 14.09 per cent at end of December 2006.

Tier I capital adequacy of 10.3 per cent (large Tier 1 capital base of over Rs 6,300 crore as on December 31, 2006). This capital adequacy level exists after paying out Rs 150 crore for acquiring United Western Bank in September 2006.