By Sumit Sharma/ Bloomberg
Mumbai: HDFC Bank Ltd.’s shares may decline on concern plans by India’s third biggest lender by market value to sell $1 billion (Rs4,088 crore) of shares may reduce returns to shareholders.
The additional shares to be sold locally and overseas could form about 12% of the bank’s equity at current prices. The Mumbai-based bank’s shares, which have declined 3.1% since 1 January on 17 May rose Rs2.35 or 0.2% to Rs1,036 on the BSE.
“Shares could decline a bit initially,” said R.K. Gupta, who manages $85 million of assets at Credit Capital Asset Management Co. in New Delhi and owns shares of State Bank of India. “All banks need capital to fund growth and new capital requirements. So it’s not much of a concern.”
Banks in India are seeking to raise additional capital to fund India’s $854 billion economy that’s expected to have grown at 9.2% in the year ended 31March and to meet new rules for capital from March.
HDFC Bank follows ICICI Bank Ltd.’s plan to sell $5 billion of stocks locally and overseas next month and the State Bank of India, the nation’s largest, which said it plans to sell up to $1.5 billion of shares by the year-end.
Banks in India increased lending by 28% in the year ended 31 March, meeting growing demand from companies and individuals in the world’s fastest growing major economy after China. Lending by banks grew on average more than 35% in the two previous years, according to central bank data.
Industrial production rose 12.9% in March from a year ago after a revised 10.8% increase in February, according to government data.
“Banks need more capital even to maintain their 25% to 30% growth,” said Jayesh Shroff, who helps manage Rs180 billion in debt and equity at SBI Funds Management in Mumbai. “There may not be much of a negative impact.”
HDFC Bank last raised $300 million selling shares to overseas investors in January 2005. The lender sold 7.6 million American depositary shares, each representing three local shares, for $39.26 apiece.
The bank posted 30% loan growth in the year to 31 March and 48% a year earlier in an economy that has expanded an average 8.6% in the past four years. HDFC Bank is 22% owned by mortgage lender Housing Development Finance Corp., which is 12.3% owned by Citigroup Inc.
ICICI Bank shares fell 7.3% on 30 April to Rs865.9 on the first day of trading after the bank announced plans on 28 April to raise $5 billion in a share sale. The shares traded at Rs935.75 on the BSE on 17 May, little changed from Rs933.65 on 27 April.