By Cherian Thomas and Kartik Goyal/Bloomberg
New Delhi: Indian banks will need to raise a record Rs50,000 crore ($12 billion) of capital in the current fiscal year as lending expands, said banking secretary Vinod Rai.
The funds will have to be raised through a combination of equity and debt, Rai said after a meeting between Finance Minister P. Chidambaram and the chairmen of state-run banks here.
Indian banks raised Rs10,000 crore through equity and local currency bonds in the year ended 31 March, according to estimates by ICICI Securities Ltd.
Banks need to raise more money to meet the central bank’s higher capital needs as lending rises. State Bank of India and ICICI Bank Ltd, the nation’s two biggest, have both said they plan to sell overseas bonds for up to $5 billion each over the next few years to help make more loans.
Credit grew 27.6% in the 12 months to 30 March, according to Reserve Bank of India data, fueled by sustained growth in demand for loans from companies and individuals in an economy the government estimates expanded by 9.2% in the past financial year.
Sales of bonds overseas by Indian banks reached $2.3 billion in 2006, from $625 million a year earlier, according to estimates from Barclays Capital.
SBI plans to sell shares this year, chairman Om Prakash Bhatt said in New Delhi on 19 April, without specifying any time frame.
The RBI said in October that banks with overseas operations will have until 31March 2008, to meet the new requirements, while banks with none will get another year. The new rules would require banks to make provisions based on the risk perception of a loan.
A bank in India at present has to maintain 9% capital adequacy for every Rs100 it lends. Capital adequacy, a key indicator of financial strength, is expressed as the ratio of capital to risk-weighed assets.
Chidambaram told banks on 19 April to moderate the loans they make to high-risk business such as real estate and capital markets.
Loans to individuals for purchase of houses, durables, loans against shares among others rose 44% in the year to March 2006. Loans to housing and real estate rose more than 50% to Rs2.13 lakh crore in the year to March 2006, according to RBI data.
Growth in loans to homebuyers rose 28% in the 12 months to 31 March and will slow to 25% this year, SBI’s Bhatt said.
—With reporting by Sumit Sharma in Mumbai