Banks Raise Capital To Meet CAR Requirements

According to latest media reports, Indian banks are raising capital to meet the stipulated Capital Adequacy Requirement (CAR) of 9%. We believe that this capital raising is primarily for their funds requirement for expansion of their business activities and also to meet the Basel III norms. The Basel III norms lay down that the Tier I capital of banks should be 7% of the total capital requirement of 10.5% (including Tier II capital).

The RBI has taken more conservative steps and proposed even more stringent guidelines than the Basel III norms, with Tier I capital requirement of 8% of the total capital requirement of 11.5%. These guidelines spell out a roadmap for the implementation of Basel III norms by Indian banks over CY13 to FY18. With the year 2013 nearing, public as well as private banks are taking the required steps to raise funds to meet their CAR requirement.

In the private banking space, IndusInd Bank recently concluded its issue for Qualified Institutional Placement (QIP) by issuing 5.21 crore of equity shares offered at a price of Rs 384 per share, which helped them to raise around Rs 2,000 crore. City Union Bank is currently raising funds up to Rs 258 crore through a rights issue. (We, at DSIJ, have taken a detailed view on both these issues in our Mindshare articles: IndusInd Bank Will Increase Its Foreign Institutional Investment and City Union Bank – Rights Issue.) Fresh media reports tell us that Axis Bank is selling around 4.58 crore new shares at the prevailing market price, which will help the bank to fetch more than Rs 6,000 crore.

Some other private players like HDFC Bank, ICICI Bank, YES Bank and DCB Bank may soon tap the market to raise funds to meet their capital norms.

On the other hand, the government is also set for capital infusion in public sector banks (PSBs). In the Union Budget 2012-13, the government had decided to infuse Rs 15,888 crore into PSBs, which has now been brought down slightly to around Rs 15,000 crore. In the last fiscal year (2011-12), the government had infused more than Rs 16,000 crore against the budgeted amount of around Rs 6,000 crore.

It is reported that the government is looking to infuse around Rs 4,000 crore in State Bank of India (SBI), which will be enough for the bank to meet its capital requirement for this fiscal. Our analysis shows that the other banks that would be requiring capital and would approach the RBI are Bank Of India, Union Bank of India, Indian Overseas Bank, Punjab National Bank, Central Bank of India and Bank of Maharashtra. However the quantum of the same is as yet unknown.

Looking at the state of the government, which itself is facing serious headwinds to meet the targeted fiscal deficit levels, it is still unclear as to how the PSBs would meet their capital requirement. This is evident from the fact that in the first 7 months (Apr–Oct) of 2012-13, the fiscal deficit stood at 71.6% of the budgeted estimates. These numbers suggest that it would be difficult for the government to infuse the required capital in the PSBs.

We will keep you posted as and when the capital infusion for the respective banks is announced, as well as its impact on the respective banks. Watch this space to read more.

For our readers’ reference, here is a list of banks which are listed on the BSE Bankex and their Capital Adequacy Ratio (CAR) as on Sept 30, 2012: