HDFC Bank may raise up to ₹13,000 crore via QIP, ADRs3 min read . Updated: 28 Jun 2020, 12:55 PM IST
- Several banks are raising capital through fresh share sales to fortify themselves against covid-induced economic shocks
- HDFC Bank expects up to a 50 bps impact from probable stress in small business loans, IndusInd at a maximum of 80 bps
MUMBAI: Private sector lender HDFC Bank is planning to raise Rs. 10,000 - 13,000 crore via share sales in India and issuance of American Depository Receipts (ADRs) in the third quarter of 2020-21, joining a growing list of Indian banks looking to shore up capital.
Two people aware of the development confirmed this.
“The equity capital is likely to be raised through a combined issuance of domestic shares and ADRs. It will be a qualified institutional placement (QIP) plus ADR issuance. The plans are at a nascent stage as we are observing the situation as it evolves under the ongoing circumstances due to covid-19 (pandemic)," said the first person.
An HDFC Bank spokesperson said, “As a matter of policy, we do not comment on market speculations."
“The effect of the crisis will reflect in books after September. So, the money will be raised most likely in the early third quarter of this financial year," said the first person.
HDFC Bank, the country's largest private sector lender, is expected to approach the market with its new share offerings in the next four-five months.
“The impact of loan moratorium and the slowing credit growth will start coming to the books of most of the large banks, including HDFC Bank, from September or from the third quarter of this fiscal year. The capital raising is aimed to strengthen the bank’s capital buffers and liquidity so that it is well-fortified to deal with any potential rise in slippages in the credit books after September," said the first person.
Several Indian banks are raising capital through fresh share sales to fortify themselves against covid-19-induced economic shocks.
There are widespread apprehensions that the countrywide suspension of businesses due to the prolonged lockdown will result in borrowers finding it tough to repay loans, which may swell slippages and force lenders, including HDFC Bank, to go for higher provisioning and loan write-offs after the September quarter.
HDFC Bank is currently the largest private lender in terms of assets and market capitalization (Rs. 5.8 trillion). The bank’s net revenues for the fiscal 2020 rose by 20.6% year-on-year to Rs.79,447 crore. The bank’s capital adequacy ratio stood at 18.5% at the end of March. The lender’s gross and net NPA ratios were at 1.26% and 0.36%, respectively at the end of 31 March this year, which is slightly better than fiscal 2019’s ratios at 1.36% and 0.39% at gross and net level respectively.
The bank made a net profit of Rs. 26,257.31 crore during fiscal 2020 as compared to Rs. 21,078.14 crore in fiscal 2019.
The bank’s Tier I capital ratio (which essentially reflects the bank’s equity capital position) has improved from 15.78% for fiscal 2019 to 17.23% in fiscal 2020.
HDFC Bank had last raised capital in 2018 through two quick tranches. First, on 17 July, 2018, via a preferential allotment of 39.1 million shares to HDFC Ltd for Rs. 8,500 crore. Later, on 2 August, 2018, HDFC Bank, via a QIP of 12.85 million shares, raised Rs.2,775 crore and via an ADR issuance raised $1.82 billion (equivalent to Rs. 12,440.9 crore then).
Mint reported on 28 April, citing internal stress tests conducted by HDFC Bank Ltd and IndusInd Bank Ltd that bad loans could grow for domestic lenders due to the lockdown.
HDFC Bank expects up to a 50 basis points (bps) impact from probable stress in small business loans. IndusInd Bank has pegged the figure at a maximum of 80 bps. One basis point is one-hundredth of a percentage point.
Indian lenders expect that extra funds would go a long way to bolster their capital base and arrest any erosion in their capital adequacy.
Several commercial banks such as IDFC First Bank, RBL Bank, Kotak Mahindra Bank, Bank of Baroda, Yes Bank and IndusInd Bank have either already raised equity capital or are in the process of raising capital. On Thursday, Bloomberg reported that ICICI Bank Ltd. is considering raising as much as $3 billion in a share sale as the lender seeks to bolster its capital ratios. ICICI Bank has already raised about $409 million by paring stakes in its publicly-traded units including ICICI Prudential Life Insurance Co. and ICICI Lombard General Insurance Co., according to exchange filings.
The country’s lenders may have to raise $20 billion of cash over the next year, according to Credit Suisse Group AG. Of that amount in expected fundraising, state-run banks are estimated to need $13 billion from the government to recapitalize.