IDFC First Bank to boost capital by Rs 2,000 cr through preferential issue

Capital infusion to be supported by IDFC limited, ICICI Prudential Life, HDFC Life, Warburg Pincus and Bajaj Allianz

The board of IDFC First Bank approved the plan to raise Rs 2,000 crore of equity through preferential issue on Friday. This would be the first time that bank would raise capital since its inception in 2015. To enable the process, the board has allowed the bank to increase its authorised capital from Rs 5,368 crore to Rs 7,538 crore retaining its face value at Rs 10 a share.

The proposed equity issue infusion is set to be subscribed by IDFC Limited (holding company of the bank), which is set to acquire 344,976,282 shares. ICICI Prudential Life Insurance Company (which will buy 258,732,212 shares), HDFC Life Insurance (86,244,070), and Bajaj Allianz Life Insurance (86,244,070), would be the new investors in the bank post the capital infusion.
 

The existing private equity investor in the bank – Warburg Pincus will also retain its stake at 9.93 per cent with its investment affiliate arm – Dayside Investments set to pick 86,244,070 shares in the preferential issue.

These investors are likely acquire the stake at Rs 23.19 a share, which works out to a premium of 5.9 per cent to Thursday’s closing of Rs 21.9. Markets remained shut on May 1. With this round of equity infusion, the bank’s common equity ratio is expected increase by 200 basis points to 15.5 per cent from 13 per cent as on March 31, 2020.

“The intention is to create a buffer for any asset quality contingency that could arise as an aftermath of coronavirus and the ensuing lockdown,” said V Vaidyanathan, MD & CEO of the bank. “There is reasonable uncertainty on how the Covid-19-related situation will play out,” he added. However, he believes that once the lockdown is eased, there is enough pent-up demand for credit and the capital raised would help the bank meet its growth requirements also.

“At times like these, having a good capital buffer would improve the image of the bank amidst depositors also,” he added. The bank’s retail deposits grew increased from Rs 13,214 crore a year-ago to Rs 33,898 crore as on March 31, 2020, marking a growth of 157 per cent. Its current account – savings account deposits grew by Rs 12,865 crore from Rs 7,893 crore last year to Rs 20,758 crore on March 31, 2020 growing by 163 per cent. The CASA ratio touched 32.03 per cent in FY20.