Syndicate Bank raising Rs3,500 crore to fund expansion

Syndicate Bank is preparing to raise about Rs3,500 crore capital, including Rs1,500 crore of Tier I and about Rs2,000 crore in Tier II. The Board of directors of the bank approved the fundraising plans at its meeting on Wednesday.

The state-owned bank would make use of the Rs1,500 crore Tier I capital, which is expected to be raised before March, to improve its capital adequacy ratio (CAR).

The bank had raised about Rs1,000 crore through issuance of Tier II bonds in 2012. It had also issued overseas bonds to raise about $500 million.

“We have now entered the league of large banks with total business of over Rs3 lakh crore. Our credit portfolio is expected to improve 18% during this year and about 20% next year. This business expansion including that of our branch network would call for strengthening the CAR,” MG Sanghvi, Syndicate Bank’s CMD, said.

The bank’s CAR is at about 10.29% (Basel I) and 11.38% (Basel II), which it expects to improve about 80 basis points with every Rs1,000 crore of additional capital.

In addition to the proposed capital raise, the bank is also working on a plan to raise about $1,000 million by issuance of overseas bonds including medium-term notes. For the quarter ended December, the bank recorded a growth of about 17% in advances at Rs1.36 lakh crore and 15% in deposits at Rs1.64 lakh crore.

Owing to high interest costs on deposits, which has pegged the bank’s cost of funds at about 6.92%, the bank witnessed a marginal fall of about 5 bps in net interest margin at 3.28%.

The bank is also sharpening its focus on increasing the fee-based income by taking up distribution of mutual funds and insurance products. “Casa (current account and savings account) is yet another key area for the bank, and our Casa deposits currently stand at about 32% and this should increase by about 50 bps  this year and 100 bps next year,” Sanghvi said.

Also, the bank has reduced its high-cost deposits by about Rs7,000 crore this year, and the CMD said the bank is currently comfortable with the residual high-cost deposits.