IDBI Bank may raise additional capital via rights issue, FPO

Written by Banking Bureau | Mumbai, Feb 26 | Updated: Feb 27 2008, 06:04am hrs
Industrial Development Bank of India (IDBI Bank) is planning to raise capital through a combination of rights issue and a follow-on public offer of equity shares sometime in the new fiscal.

Addressing the media after announcing the tie-up with Motilal Oswal Securities for on-line equity trading, Yogesh Agarwal, chairman and managing director of IDBI Bank said, iries the funds would be deployed to meet higher capital compliance under Basel-II norms and expansion of bank operations. IDBI Bank was also on the lookout for acquiring a bank sometime next fiscal "We are in talks with the government for raising the capital through part rights issue and partly through FPO," Agarwal said. The government's stake in IDBI is currently at 52%, and the bank has submitted a capital restructuring plan to the government, which will enable it to raise capital without diluting government stake from the current level." After the rights issue and FPO, we will maintain the government's stake at 52%," Agarwal said.

On the recent prime lending rate cut of 25 to 50 basis points by government banks, Agarwal said the move is not expected to give a fillip to sagging credit portfolios as the rates are still seen as high. Many state-run banks, last week, cut their prime rates in what is termed by financial circles as 'coercion' by the government rather than fundamentals. Despite the move, the rates are seen higher as many of these banks were stuck with high-cost deposits.

The interest rates have surged by 2.5-3% during the past one year and hence a mere 50 basis point-cut is not going to help banks achieve a larger exposure in retail". Banks have also slashed housing loan rates but the rate at which real estate has surged in the recent past has made home loans less attractive. "The poor home loan offtake was a result of shooting property prices, not essentially the high interest rate," Agarwal said. In fact, the recent rate-cut was more sort of a psychological issue, he said. On the bank deposits side too, Agarwal opined that they needed to be made more attractive and there should be tax incentives to bolster deposit portfolios as in mutual funds.

Stock markets offer better returns and there was a fear that there could be flight of bank deposits to equities once the market comes out of its present slumber.