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State Bank of Travancore (SBT), associate of State Bank of India (SBI), will need equity capital of Rs 2,500-3,000 crore to support an annual 14 per cent rise in assets till March 2019.
That apart, the bank became the first to cut its base rate after the Reserve Bank of India's reduction of its prime lending rate by 25 basis points to 7.5 per cent on Wednesday. SBT has decided to reduce its base rate by 10 bps to 10.15 per cent with effect from March 16.
As for the needed rise in capital, ICRA, the ratings agency, says SBT will need this much to maintain a core equity capital ratio of nine per cent under Basel-III norms. SBI, which holds 79 per cent stake in SBT, has been infusing capital into the latter at regular intervals. During FY14, it infused Rs 385 crore. SBI is also expected to be the key participant in SBT's proposed rights issue of Rs 485 crore.
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Besides equity capital (tier-I), the bank is also raising debt capital (tier-II) bonds. SBT will issue bonds complaint with Basel-III up to Rs 691 crore. ICRA has assigned an ‘AAA’ rating. SBT’s gross advances grew a modest three per cent in 2013-14 to Rs 70,782 crore, as against the banking sector average of around 14 per cent in the same period.
Gross advances declined three per cent to Rs 68,521 crore in the first nine months of the current financial year, ended December 2014. This fall could be attributed to the conservative business approach due to asset quality pressure.
The slippages have been especially high in the corporate segment. Gross non-performing assets increased to 4.9 per cent of the total in December 2014, up from 4.3 per cent in March 2014 and 2.6 per cent in March 2013.
