Fundraising aimed at bolstering investor confidence amid deterioration of balance sheet
Promoters have shown interest in bringing additional capital, but any such effort requires RBI nod
IndusInd Bank and its promoter the Hinduja Group have initiated talks with sovereign wealth funds and pension funds, including Canada’s CPPIB and Singapore’s GIC Pte Ltd, to raise as much as $500 million. This is aimed at bolstering investor confidence amid deterioration of the private lender’s balance sheet and flight of deposits after the Yes Bank Ltd fiasco.
More than two-thirds of the bank’s market value has been wiped off since the beginning of March. The stock last traded at ₹313.25 on Friday.
“IndusInd Bank has been one of the most impacted banks in the covid-19 market rout. With promoter shareholding almost close to the maximum cap defined by the Reserve Bank of India, they have to bring in external investors to pump in capital. The group is in talks with deep pocketed investors who can help bring in capital and also assuage market concerns," said one of the people cited above, requesting anonymity as the talks are private.
Promoter stake at IndusInd Bank stands at 14.68% as against the maximum regulatory limit of 15%. Promoters have shown interest in bringing additional capital into the bank, but any such effort will require the approval of the central bank.
Some of the investors that have held talks with the bank include Canada’s largest pension fund manager Canada Pension Plan Investment Board (CPPIB) and Singapore’s state investor GIC, the person said, adding that the talks are in early stages.
Investment bank Morgan Stanley has been hired to help with the fundraising efforts, the person said.
IndusInd Bank and CPPIB declined to comment. Emails sent to GIC, Morgan Stanley and the Hinduja Group did not elicit a response.
“The bank is well-capitalized with Tier 1 ratio of 15% and Capital Adequacy Ratio of 15.43% (with 9M FY20 profit). There is no specific transaction under consideration by the board of the bank at this stage. We stay committed to evaluate alternatives from time to time that may benefit our stakeholders. As is our practice, anything to be disclosed under LODR (Listing Obligations and Disclosure Requirements) or applicable regulations will be duly disclosed," the bank had informed stock exchanges on Friday.
A large dose of capital infusion in the near term is essential for the bank to stem the erosion of its market cap as well as the health of its business, which has seen large depositors withdraw money from the bank and rating agencies taking a negative view of the bank’s future performance.
On 18 March, IndusInd Bank said that its deposit base had eroded by nearly 2% as some state governments shifted deposits from the private lender.
Also on 3 April, rating agency Moody’s Investors Service placed IndusInd Bank Ltd’s domestic and foreign currency issuer ratings under review for downgrade, citing risks to asset quality.
Moody’s said that the review for downgrade reflects the downside risks to asset quality amid the deteriorating macro environment and financial market volatility.
“The bank’s loan portfolio includes a relatively higher proportion of micro-finance and vehicle finance loans than its peers, which are at high risk of being negatively impacted by the economic shock as customers in these segments tend to have limited buffers to withstand economic stress," it said.
The rating agency said that IndusInd Bank’s funding is weak when compared to other rated Indian banks, as reflected by its high deposit concentration and low share of retail deposits.
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