A raft of banks are rushing to float bonds mostly through qualified institutional placements to fund operational needs and to adhere to the Basel II capital norms.
MUMBAI: A raft of banks are rushing to float bonds — mostly through qualified institutional placements — to fund operational needs and also to adhere to the Basel II capital norms, efforts towards which are expected to kick off by March 2008.
Public sector entity Bank of Baroda plans to raise Rs 2,500 crore during the next few months in order to fulfill their new capital requirements, while Dena Bank will raise Rs 750 crore by December 2008, Union Bank Rs 300 crore and City Union Bank Rs 250 crore.
“We are looking at raising Rs 1,500 crore by way of upper-tier II capital. This will be done before March 2008,” said V Santhanaraman, executive director of Bank of Baroda (BoB).
The bank has filed the necessary documents with both the exchanges. BoB plans to raise the remaining Rs 1,000 crore later. Of this, Rs 500 crore will be raised through perpetual bonds and the rest by way of lower-tier II bonds.
BoB Capital Markets, the merchant banking arm and a wholly owned subsidiary of the bank, is the sole banker to the issue.
“Our credit offtake is picking up and we need capital for the same. Also, we are raising this capital to fund our operational needs in addition to meet our Basel II requirements,” said Santhanaraman. BoB expects a credit growth of 18-20% in the remaining part of the financial year.
Union Bank of India is also planning to mobilise Rs 300 crore by way of upper-Tier II bonds.
“We are in need of some capital to meet our operational needs and for Basel II implementation. We are looking at raising this capital by March 2008,” said a bank official.
Union Bank’s capital adequacy ratio was at 11.55% as of September 2007. The additional capital will take the ratio closer to 12%, the official said.
Meanwhile, Bank of India has sought an approval to dilute 5% of its equity holdings and plans to issue Rs 300-400 crore by March 2008.
The mid-sized Dena Bank is looking at raising Rs 1,000 crore by the end of December 2008 to augment its long term resources and to shore up its capital adequacy ratio.
“We raised Rs 125 crore by way of hybrid bonds. The bonds are issued on a private placement basis,” said a senior bank official who did not wish to be named. “The remaining amount will be raised as and when there is a need for capital but before December 2008,” the official said.
Meanwhile, Vijaya Bank will raise Rs 200 crore through a lower-Tier II bond issue which opened on Monday. The bonds will pay a coupon of 9.35% annually and have tenure of 124 months. The issue will close on December 26.
Kumbakonam-based City Union Bank Ltd, which has a strong presence in Tamil Nadu, plans to raise Rs 250 crore from the market. Rs 100-150 crore will be raised during the first quarter of 2008-09 through either a preferential share issue or share placement with qualified institutional buyers (QIBs). The balance will be raised a year later.
Analysts say the need for fresh equity will persist as loan growth rate is expected to continue to outstrip the internal capital generation ratio by a fairly wide margin.
“The internal capital generation ratio for Indian banks was around 10%, going up to 15% for the more profitable banks in 2007, while risk-weighted assets grew by over 20%. The trend is likely to persist in the near future,” said Ananda Bhoumik, senior director of Fitch Ratings.
Bhoumik added that with Basel II implementation in March 2008, there will be a need for additional capital for operational risk, tempered somewhat by possibly lower charges for credit risk under the standardised approach.
mahalakshmi@dnaindia.net
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}