IDBI Bank plans Rs 3,119-cr preference issue to Govt

IDBI Bank Ltd. | Bank - Private | BFSI | BSE: 500116 | NSE: IDBI

21 Jul 2010 Evaluate

IDBI Bank plans to raise Rs 3,119 crore through preferential issue of equity shares to the Government. The infusion will augment the bank's capital adequacy and help grow its balance-sheet. The bank currently does not have much headroom to raise capital through a follow-on public offer as the statute stipulates that the Government's shareholding cannot fall below 51 per cent.

The Government's shareholding in the bank, as of March 31, 2010, was 52.67 per cent. The capital injection will raise the Government's stake to 65 per cent. Further, the bank's capital adequacy ratio (CAR), that is, the ratio of capital to risk-weighted assets, will improve from 11.40 per cent to 13 per cent. CAR is a measure of the capacity of a bank to absorb any expected losses and protect the depositors.

Following the global financial meltdown, which saw many multinational banks going belly-up, the Government, to be on the safe side, said all public sector banks should maintain Tier-I capital (core capital) of 8 per cent. IDBI Bank's core capital was at 6.24 per cent as of March-end 2010. Without the capital infusion, the bank's ability to grow its advances portfolio would have been hampered.

Before approaching the Government for capital infusion, IDBI Bank will seek shareholders approval at the annual general meeting to be held on Thursday, in Mumbai for increasing the authorised capital from Rs 1,250 crore to Rs 2,000 crore. Subsequently, the bank's Board of Directors will meet to consider a preferential issue of 25.95 crore equity shares of Rs 10 each at Rs 120.19 a share (comprising Rs 10 face value and Rs 110.19 share premium amount) aggregating Rs 3,119.04 crore to the Government of India.

crack crack