ICICI Bank’s plans to raise Rs20,000 crore from both Indian and foreign investors is an indication of the huge amounts of capital that our banks are likely to need if they are to continue funding the economic boom. Few seem to realize that a shortage of bank capital could be as serious an impediment to growth as the shortage of power or port capacity are.
Global regulations require a bank to back its assets with capital. Indian banks have been growing their assets (or loans) at an average of 30% over the past three years. Their capital is already close to the minimum needed—they cannot maintain loan growth for much longer without fresh capital. And last week, RBI said banks will have to shift to the more stringent Basel 2 norms by 2009.
ICICI Bank is smart to be in the advance guard. It remains to be seen how other banks manage their quest for capital.