HDFC Bank Lines Up Rs 24,000 Crore In Equity Fund Raising
HDFC Bank says it plans to raise Rs 24,000 crore, a day after HDFC revealed its plans to raise cash.
The board of directors of HDFC Bank Ltd. has approved a proposal to raise Rs 24,000 crore through a mix of instruments, including a preferential allotment to parent HDFC Ltd. The fund raising plan - the largest by an Indian company - comes against the backdrop of strong growth in the bank’s balancesheet over the last two years and an expectation that credit demand will revive as the economy stabilises.
Detailing its fund raising plan, HDFC Bank said that of the Rs 24,000 crore, Rs 8,500 crore will be through an issue of shares to HDFC Ltd. The remaining funds will be raised through issuance of equity shares, convertible securities or depository reciepts under a qualified institutional placement, American Depository Receipts or Global Depository receipt programme, the statement said.
Also Read: HDFC To Raise Up To Rs 13,000 Crore
Funding Its Growth Run
HDFC Bank last raised equity capital in 2015. At the time, the bank raised Rs 9,800 crore through a mix of a QIP issue and an ADR issue. Since then, the bank has seen strong growth in its loan book as it continued to expand its share in a market where large state-owned lenders were withdrawing due to the legacy of bad loans.
In fiscal 2017, the bank saw advances grow by 19 percent even though credit growth across the banking system was at a near record low of 5 percent. The growth has continued this fiscal. HDFC Bank’s total advances as of Sept. 30, 2017 were at Rs 6.04 lakh crore, an increase of 22.3 percent over Sept. 30, 2016. Domestic advances growth was even higher at 26.8 percent during this period.
The rapid growth has meant that HDFC Bank has overtaken ICICI Bank Ltd. and is now the largest private lender domestically, on a standalone basis. As of Sept. 30, the HDFC Bank’s balancesheet size was at Rs 9.3 lakh crore compared to ICICI Bank’s Rs 7.87 lakh crore.
The large capital raising plan is likely to only strengthen HDFC Bank’s capital adequacy ratio and its position in the market. As of September-end, the lender had a capital adequacy ratio of 15.1 percent. This ratio may rise to close to 18 percent post the fund raising, said brokerage house Angel Broking in a note.
HDFC Bank stock is currently quoting at its all-time high and hitting the market right now will permit the bank to raise money at attractive valuations. With a GDP and industrial revival expected in the next few quarters, HDFC Bank is keeping its war chest ready so that capital adequacy does not become a hindrance when it comes to aggressively expanding its loan book.Angel Broking
Typically, the lender has chosen to focus on the lower risk segments in the market including retail lending and working capital finance. The bank’s loan mix between retail and wholesale stand at 55:45, according to a presentation on its website.
HDFC Bank Not Alone
HDFC Bank is the latest among a clutch of lenders that have chosen to raise equity this year. In November, peer Axis Bank raised Rs 11,625.8 crore by issuing shares and warrants to Bain Capital Private Equity and other investors. In May, Kotak Mahindra Bank raised Rs 5,800 crore through a QIP issue as well.
The fund raising comes at a time when there is hope that the bad loan cycle may peak and credit growth may revive in the next financial year. There are some early signs of this. Credit growth has picked up from a low of 5 percent in the immediate aftermath of demonetisation to 10 percent now. Some of this pick up in growth rates is due to a low base effect.
The build up bad loans is also expected to slow down from here on, although fresh stress could emerge from sectors like telecom. Gross bad loans of listed banks rose to Rs 8.4 lakh crore as of September 2017, shows data compiled by BloombergQuint.
Apart from raising capital to provision against bad loans and support growth, banks are also raising funds to comply with the IFRS accounting rules which come into force starting March 2018.