Indias ICICI Bank To Raise $2b Via Share Sale

The proposed fund raise by the bank comes after a gap of 13 years. The private lender had last raised Rs. 8,750 crore via fresh issuance of shares in June 2007. The latest fund raise plans were announced after the bank’s board voted in favour of enabling resolution allowing it to raise fresh funds through issuance of shares via private placement, preferential issue, qualified institutions placement, follow-on public offering or a combination of any of these routes.

On Sunday, ICICI Bank had stated in an exchange filing that it would look at further strengthening the balance sheet. As on 31 March, 2020, ICICI Bank’s common equity tier 1 (CET 1) capital, a yardstick to assess a bank’s ability to provide for loan losses, write-off loans and spend money on potential acquisitions or capital infusion plans, stood at 13.39%, which is lower than 13.64% as at the end of March last year.

The bank’s tier-1 capital ratio was at 14.72% for fiscal 2020 as against 15.09% for fiscal 2019.

The bank’s capital to risk-weighted assets ratio (CRAR) has fallen from 16.89% in fiscal 2019 to 16.11% as on 31 March, 2020. Now, with the bank’s capital position weakening, ICICI Bank is in a rush to raise as much money as possible via share sales.

The bank has already raised Rs. 3,090 crore by selling a part of its holdings in its two insurance subsidiaries last month.

On 22 June, ICICI Bank sold 1.5% stake in its life insurance arm ICICI Prudential Life Insurance Co. Ltd. for 840 crore.A week earlier, the private lender sold 3.96% stake in its general insurance arm ICICI Lombard General Insurance CO. Ltd. for ₹2,250 crore.

For fiscal 2020, ICICI Bank’s gross non-performing loans ratio was at 5.93% while on a net basis NPL was at 1.53% for the fiscal year that ended on 31 March, 2020.

Like many other lenders ICICI Bank may face business headwinds due to prolonged lockdown which has impacted the repayment ability of borrowers. Since March this year many lenders including, public and private sector banks have announced plans to raise funds to bolster their capital buffers to be able to deal with higher provisioning and write-offs against potentially higher bad loans in the coming months.

As per rating agency Crisil Ltd. bad loans could rise as much as 11.5% of the total advances at the end of this fiscal year. Bad loans were at 9% levels at the end of fiscal 2020.

Also, on 27 March, 2020, the Reserve Bank of India has extended the transition period for implementing the last tranche of 0.625% under capital conservation buffer (CCB) by six months i.e. from 31 March to 30 September, 2020. Once this new rule is implemented as per Basel III guidelines, the minimum CRAR requirement for banks will increase to 11.70%, minimum CET1 ratio will increase to 8.20% and minimum Tier-1 ratio would go up to 9.70%.

The bank’s plan to raise funds by share sale are however not entirely new. In November last year, Mint had first reported on ICICI Bank’s plans to raise around ₹20,000 crore by selling shares to institutional investors, in one of the biggest such capital raising exercises in India.

ICICI Bank is the third large private bank after Kotak Mahindra Bank and Axis Bank to plan a share sale to raise capital.

On 28 June, Mint reported that India’s largest private lender HDFC Bank Ltd. too 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.

Axis Bank has announced it would raise upto ₹15,000 crore via a share sale. Private lender Kotak Mahindra Bank has already raised ₹7,442 crore through a QIP. Several other banks, including Yes Bank, IDFC First Bank, RBL Bank, Bank of Baroda and so on, are also in the process of raising equity capital or have already done so.

The article was first published on livemint.com