Public sector lender Canara Bank plans to hit capital market in the fourth quarter of current fiscal (FY21) with equity capital issue of up to Rs 5,000 crore. Besides, it would also raise additional tier-I capital of Rs 1,500 crore each in the second and third quarters of FY21. The lender is raising capital to grow business and build buffer for lender to absorb shock from stress due to pandemic.
L V Prabhkar, managing director and chief executive, Canara Bank, told Business Standard the bank is fundamentally strong and prefers to raise capital from the market. It has not sought equity infusion from the government yet, but will be always ready to take it. The bank has already started preparations for capital raise (equity and AT1 bonds).
The Bengaluru-based lender, which merged Syndicate Bank with itself on April 01, has a Rs 6.5 trillion loan book and a capital adequacy ratio (CAR) of 12.77 per cent with common equity tier-I (CET-1) of 8.15 per cent at the end of June 2020 (Q1Fy21). The CAR was 12.96 per cent with CET-1 of 8.40 per cent for the amalgamated entity at opening of new financial year (April 2020).
The Reserve Bank of India, in financial stability report, said it has asked banks to assess the impact of Covid-19 on aspects like balance sheets, asset quality, and capital adequacy for FY21. Banking regulator has also advised lenders to ensure that such analyses are supplemented with possible mitigating measures, including capital to ensure uninterrupted credit supply to different sectors of the economy.
Last month, Global rating agency Standard and Poor's (S&P) had said Indian public sector banks would need additional capital of Rs 35,000-40,000 crore in FY21. And barring State Bank of India and a few large PSBs, most will need capital infusion from the government and government-owned enterprises due to low market valuation.
Prabhakar said domestic credit has grown by Rs 5,000 crore, or five per cent, during the Covid period under lockdown. “Going forward, the bank is projecting a credit growth of 6-8 per cent in the second quarter ending September 2020. We will take call for third quarter, depending on the economic conditions”.
Banking system credit was up 6.1 per cent year-on-year till June 3, versus 12 per cent a year ago, as per RBI data.