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HDFC Bank, ICICI, Axis Bank create capital buffers; to raise over Rs 1 lakh crore

HDFC Bank, ICICI, Axis Bank create capital buffers; to raise over Rs 1 lakh crore

Coronavirus-related disruption could double NPAs in the months ahead; banks are preparing for the worst

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Anand Adhikari
  • Jul 6, 2020,
  • Updated Jul 6, 2020 2:44 PM IST

KEY HIGHLIGHTS

  • HDFC Bank, will raise Rs 13,000 crore in first tranche, while Axis Bank has planned Rs 15,000 crore
  • Kotak Bank and IDFC First Bank had recently raised around Rs 7,500 crore and Rs 2,000 crore, respectively
  • Yes Bank also needs capital desperately as its ratio has fallen to regulatory minimum
  • Banking industry's outstanding term loan book is around Rs 59.52 lakh crore as on December 31, 2019
Top three banks - HDFC Bank, ICICI and Axis Bank - have lined up plans to raise confidence capital of over Rs 1 lakh crore in light of coronavirus-related disruption.  The capital planned will be a mix of equity and debt. The largest private sector bank, HDFC Bank, will be raising Rs 13,000 crore in first tranche, while Axis Bank has planned Rs 15,000 crore. There is investor appetite for private banks as their NPAs are low. There is also a higher share of retail assets - over 50 per cent - which are considered safe. There is no urgency for these banks to raise capital as they are sitting on comfortable tier 1 capital adequacy ratio of over 13 per cent, which is much above the regulatory requirement. The idea of raising fresh capital is to strengthen the balance sheet and create capital buffers for any shocks in the future. The new capital would not only bring stability and allow the management to focus on business, but also give comfort to shareholders to stay put in the stock. In banking business, capital is needed to underwrite any loans (by way of risk weights) and provisioning for bad debts. Kotak Bank had recently raised around Rs 7,500 crore via equity sale. IDFC First Bank also mobilised Rs 2,000 crore capital few weeks ago. The small banks like Federal Bank and Yes Bank have also planned to raise around Rs 30,000 crore. Federal Bank has a board approval for raising Rs 12,000 crore capital. Yes Bank, however, needs capital desperately as its ratio has fallen to regulatory minimum. Meanwhile, public sector banks, which control two third of the banking, are waiting for the government to recapitalise the banks. The PSBs may need rescue capital as they have a large loan book under the six-month moratorium, which ends in August next month. There is also a regulatory relief till August from classifying these loans as NPAs. Clearly, coronavirus-related NPAs will start hitting the banks in December quarter. Currently, PSBs have witnessed over 65-70 per cent of their loan book avail moratorium, while most of the private sector banks have seen one-third of their customers by value opt for moratorium benefits.  Banking industry's outstanding term loan book is around Rs 59.52 lakh crore as on December 31, 2019, out of which roughly 65 per cent of term loans are estimated to be under moratorium. As per RBI estimates, the term loan book of Rs 38.68 lakh crore is under six-month moratorium. In a worst case scenario, there are estimates of  20 per cent of the loan book under moratorium slipping into NPAs, which comes out to be Rs 8 lakh crore. These fresh NPAs would almost double the NPAs in the banking system from the current level of 9 per cent of the total advances. Also read: Bankers claim COVID-19 caused huge 'demand destruction' overseas

 

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KEY HIGHLIGHTS

  • HDFC Bank, will raise Rs 13,000 crore in first tranche, while Axis Bank has planned Rs 15,000 crore
  • Kotak Bank and IDFC First Bank had recently raised around Rs 7,500 crore and Rs 2,000 crore, respectively
  • Yes Bank also needs capital desperately as its ratio has fallen to regulatory minimum
  • Banking industry's outstanding term loan book is around Rs 59.52 lakh crore as on December 31, 2019
Top three banks - HDFC Bank, ICICI and Axis Bank - have lined up plans to raise confidence capital of over Rs 1 lakh crore in light of coronavirus-related disruption.  The capital planned will be a mix of equity and debt. The largest private sector bank, HDFC Bank, will be raising Rs 13,000 crore in first tranche, while Axis Bank has planned Rs 15,000 crore. There is investor appetite for private banks as their NPAs are low. There is also a higher share of retail assets - over 50 per cent - which are considered safe. There is no urgency for these banks to raise capital as they are sitting on comfortable tier 1 capital adequacy ratio of over 13 per cent, which is much above the regulatory requirement. The idea of raising fresh capital is to strengthen the balance sheet and create capital buffers for any shocks in the future. The new capital would not only bring stability and allow the management to focus on business, but also give comfort to shareholders to stay put in the stock. In banking business, capital is needed to underwrite any loans (by way of risk weights) and provisioning for bad debts. Kotak Bank had recently raised around Rs 7,500 crore via equity sale. IDFC First Bank also mobilised Rs 2,000 crore capital few weeks ago. The small banks like Federal Bank and Yes Bank have also planned to raise around Rs 30,000 crore. Federal Bank has a board approval for raising Rs 12,000 crore capital. Yes Bank, however, needs capital desperately as its ratio has fallen to regulatory minimum. Meanwhile, public sector banks, which control two third of the banking, are waiting for the government to recapitalise the banks. The PSBs may need rescue capital as they have a large loan book under the six-month moratorium, which ends in August next month. There is also a regulatory relief till August from classifying these loans as NPAs. Clearly, coronavirus-related NPAs will start hitting the banks in December quarter. Currently, PSBs have witnessed over 65-70 per cent of their loan book avail moratorium, while most of the private sector banks have seen one-third of their customers by value opt for moratorium benefits.  Banking industry's outstanding term loan book is around Rs 59.52 lakh crore as on December 31, 2019, out of which roughly 65 per cent of term loans are estimated to be under moratorium. As per RBI estimates, the term loan book of Rs 38.68 lakh crore is under six-month moratorium. In a worst case scenario, there are estimates of  20 per cent of the loan book under moratorium slipping into NPAs, which comes out to be Rs 8 lakh crore. These fresh NPAs would almost double the NPAs in the banking system from the current level of 9 per cent of the total advances. Also read: Bankers claim COVID-19 caused huge 'demand destruction' overseas

 

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ABOUT THE AUTHOR

Anand Adhikari

Anand Adhikari began his journalism career with the financial weekly Guardian Investor after completing his graduation from Delhi University and ICWA in the mid-1990s. He then moved to the Delhi bureau of  Kolkata based 'The Telegraph.'

He relocated to Mumbai, the financial capital, with the Hindustan Times Group in the late 90s.

In a career spanning two and a half decades,  Adhikari has covered financial markets, corporate sector, banking, debt market, economy, central banking, and insurance. He is currently the Managing Editor of Business Today.

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