MUMBAI: IDFC FIRST Bank on Friday disclosed plans to raise ₹2,000 crores via a preferential issue to ICICI Prudential Life Insurance Co., HDFC Life Insurance Co., Bajaj Allianz Life Insurance, Dayside Investment (Warburg Pincus group), and the bank’s promoter, IDFC Ltd, among others.
On 28 April, Mint had reported that IDFC First Bank is looking to raise ₹1,800-2,000 crore through a preferential allotment of shares and the capital will be used for strengthening the lender’s capital buffers and drive future growth
The preferential allotment will help the bank improve its common equity tier 1 or CET 1 ratio, which 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%.
Post the preferential allotment, the bank’s capital adequacy will be 15.5% with CET1 (common equity tier 1) at 15.3%.V Vaidyanathan, the bank’s managing director, and chief executive, said, “The new capital with strong capital adequacy will enable us to continue to power up growth in the chosen areas. It also empowers us to navigate current market uncertainties from a position of strength.”
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 aggravate due to the lockdown in the wake of a covid-19 pandemic.
On Friday, after a board meeting, the bank said it will issue 862.4 million fresh shares on a preferential basis at ₹23.19 apiece to existing and new investors.
In the preferential issue, the bank has proposed to raise ₹800 crores from IDFC Financial Holding, ₹600 crores from ICICI Prudential Life Insurance, ₹200 crores from Dayside Investment (an affiliate of Warburg Pincus group), ₹200 crore from HDFC Life Insurance, and ₹200 crores from Bajaj Allianz Life Insurance.
The bank has also proposed to increase its authorized share capital to ₹7,538 crores from ₹5,363 crores.
The bank said the capital from the preferential allotment will help it raise more retail CASA, retail deposits, and thereby reduce the overall cost of funds.
The bank’s retail deposits grew 16% quarter-on-quarter and 157% year-on-year to ₹33,898 crores as on 31 March.
CASA deposits grew 28% sequentially and 163% Y-o-Y to ₹20,758 crore as on 31 March.
According to a recent presentation, IDFC First Bank has kept R. 3,487 crore of assets in its watch-list, of which ₹2,253 crore is in the form of infrastructure financing. But the number 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 had reported a loss of ₹1,639 crore loss for the December quarter due to a ₹1,622 crore provisioning towards a large telecom account.
Apart from IDFC First Bank, other banks are also looking to raise capital through equity issuance.