IDBI Bank mulls share sale to boost capital base

State-run lender IDBI Bank may consider raising funds through a follow-on share sale in the current financial year to boost its capital base, a senior official told Reuters on Tuesday, joining other lenders raising money to boost growth and meet rising credit needs.

"We are looking at all the possibilities, and, if the timing is right, we may think of raising some equity", said RK Bansal, executive director, without disclosing the size.

"At present, government shareholding is at 65% so we do have some leeway. If at all we raise it, it may be an FPO kind of thing," he said, adding it could be in the second half of the year.

IDBI shares, which were up around 1% before Reuters snaps, extended gains to 2.5% in a firm Mumbai market. They ended up 2.2% at Rs 134.55.

Last week, Bank of India's board approved raising funds selling shares while Indian Bank hopes to hit the market with its follow-on public offer by the end of August or early September.

In March, Canara Bank raised $443 million by selling shares to institutional investors.

IDBI itself has plans to raise $1 billion through medium term notes in the fiscal year that ends in March 2012.

Several Indian lenders have put their plans for domestic debt raising on the backburner, deterred by surging interest rates. They are waiting for borrowing costs to soften before hitting the market, while some may tap the equity markets, banks and analysts said.

The Reserve Bank of India has raised key policy rates nine times since March 2010, including the larger-than-expected 50 basis points hike in its annual monetary policy statement on May 3, to curb sticky inflation.

However, Bansal said IDBI will wait for the markets to improve before taking a call on the share sale and is currently focusing on its branch expansions and the low-cost current account savings account (CASA) for growth.

IDBI is looking at credit growth of 15-16% in this fiscal year against the central bank's target of 19%. Most other banks have said they were eyeing lending growth of around 20%.

"As of now our problem is that our balance sheet size is too big vis-a-vis our branch network. So there's no other choice than concentrating more on opening branches and CASA rather than looking into only credit growth," Bansal said.

"Once we reach CASA of at least 25% then we can re-look at this strategy."

The lender, which has 850 branches, plans to add 250 more by March to expand its network, he added.

It is also looking to step up recourse to refinance facility provided by financial institutions such as EXIM Bank, Nabard and SIDBI to save costs and plans to avail Rs 7,000-8,000 crore refinance this year compared with Rs 4,000-5,000 crore a year ago.

"The advantage is that refinance doesn't attract statutory liquidity ratio (SLR) or cash reserve ratio (CRR). If I raise the same money through deposits, costs goes up because of SLR, CRR while if I take refinance my cost remains cheaper."

Source: Business Standard