IDFC First Bank Ltd. is looking to raise Rs. 1,800-2,000 crore via a preferential allotment of shares shortly, said a person directly aware of the bank’s plans.
“The capital, which is likely to be raised this quarter, will be used for strengthening the bank’s capital buffers further and for growth of the bank,” said this person, who declined to be named.
The bank plans to issue shares to local and overseas investors in the proposed preferential allotment and if there is any shortfall in capital raising, the bank may consider a rights issue too to raise money through existing investors, said this person.
The bank has not yet appointed any merchant bank for the equity issuance.
On Tuesday, in an exchange filing the bank said its board will meet on Friday to consider the capital raising agenda.
The bank’s provisions have been increasing since its merger with Capital First in December 2018.
The bank’s common equity tier 1 or CET 1 ratio has steadily fallen from 15.27% in March 2019 to 13% at the end of March this year. The bank’s capital adequacy ratio has deteriorated from 15.47% in March 2019 to around 13.28% now. The regulatory requirement for the total CAR is 10.875% with CET-1 ratio at 8.875%.
Capital raising through equity typically enhances a bank’s common equity tier 1 capital, a yardstick to assess a bank’s ability to provide for loan losses, write off loans and finance business growth, including spending on potential acquisitions.
Going by the trend, the bank needs capital to continue providing for bad loans, which may further aggravate due to the ongoing lockdown.
According to a recent presentation, IDFC First Bank has kept Rs. 3,487 crore of assets in its watch-list, out of which Rs. 2,253 crore are in the form of infrastructure financing. But the amount of stressed assets may increase for the overall banking industry due to the suspension of business activities in the wake of covid-19.
The bank posted a Rs. 1,639 crore loss for the December quarter due to a Rs. 1,622 crore provisioning towards a large telecom account.
The bank’s wholesale funded assets have come down from Rs. 56,665 crore in March last year to Rs. 40,415 crore now. Accordingly, corporate loans have come down from Rs. 20,202 crore in March 2019 to Rs. 11,098 crore now. The bank has also lowered its infrastructure lending book to Rs. 14,315 crore from Rs. 21,459 crore at the end of March 2019.
The bank is currently focusing on increasing its retail footprint. However, the bank’s total funded assets (including retail and wholesale assets) have fallen from Rs.1.12 trillion in June 2019 to Rs. 1.06 trillion at the end of December.
Apart from IDFC First Bank, other banks are also looking to raise capital through equity issuances.
