Public sector Andhra Bank, which planned to raise Rs500-700 crore of funds as tier II capital in the third quarter of this fiscal, may postpone the issue because customers are going slow on borrowing.
The bank’s capital adequacy ratio was 12.49% at June-end this year, down from 14.38% in June 2006.
It is currently at 11.38% and may come down to 10.48% by the end of the current fiscal with normal credit growth, its chairman and managing director K. Ramakrishnan said.
“It is not difficult to raise funds of, say, Rs400 crore, which we can raise overnight,” he said. “But, if I am not able to meaningfully deploy those funds, it does not make sense to raise funds. Today, I have around Rs3,000 crore of undisbursed loans that we have sanctioned. The clients have to pick them up.”
The slowdown stemmed from customers waiting for their capital expenditure plans to materialize, waiting for regulatory clearances and some anticipating even lower rates of interest. These clients belong to sectors such as construction, infrastructure and power, he added.
Credit growth has been sluggish in the first six months of the current financial year, but Andhra Bank is faring better than the sectoral performance, Ramakrishnan said. “Against the sectoral growth of 8-8.5% in credit offtake, we have grown at 9-10% so far, this year. However, our credit growth in the first six months of the last financial year was far better at 18-20%.”
Growth in deposits, in both savings and current accounts, was also not aggressive enough. The net interest rate, as a result, would be under strain this fiscal, the chairman added. The bank’s cost of deposits has gone up from 4.85% in 2005-06 to 5.83% in the last fiscal to 6.25% now.
The net interest margin for the current fiscal would come down to around 3% from 3.32% now, Ramakrishnan said.
However, the chairman said he was hoping for a robust growth in credit offtake during the second half of this fiscal.
Separately, Andhra Bank said it had entered into an agreement with Hewlett-Packard India Sales Pvt. Ltd for implementing a comprehensive core banking solution (CBS) at an undisclosed cost.
The arrangement is for deploying the Finacle CBS of Infosys Technologies Ltd in 550 branches of Andhra Bank over a period of 24 months, which covers close to 80% of the bank’s business.
While the bank management declined to divulge the deal size, sources said the contract is worth a little more than Rs100 crore.
This takes the cumulative CBS business of HP India so far to more than Rs2,000 crore, its managing director, Balu Doraisamy, told reporters.
HP India had earlier implemented CBS for Bank of India, Bank of Baroda, State Bank of India’s international business, Uco Bank and Union Bank of India.