How Fund Raising, Capital Infusion Will Boost Allahabad Bank’s Capital Ratios

Allahabad Bank’s plan to raise equity capital worth Rs 4,000 crore and the nearly Rs 7,000-crore capital infusion by the government will improve its tier-I capital adequacy ratio by nearly half, according to BloombergQuint's calculations.

The bank’s tier-I capital ratio will inch up to 13 percent from 7.15 percent after the two issues, assuming the management accomplishes its goal of achieving risk-weighted assets of Rs 1.34 lakh crore by the end of March quarter, the calculations show.

This capital will help the bank to grow further and ensure that the recovery is not a fragile one, said Lalitabh Srivastava, assistant vice president of research at Sharekhan.

The government, as part of its bank recapitalisation scheme, had infused Rs 6,896 crore into the lender in February, helping it come out of the Reserve Bank of India’s Prompt Corrective Action framework, under which it was restricted from lending to certain high-risk categories. Out of this amount, Rs 2,750 crore was allotted towards provisioning of bad loans in order to bring down its net non-performing asset ratio below the PCA threshold. The remaining Rs 4,146 crore was used to shore up its capital base to enhance the capital to risk-weighted asset ratio of the bank above the minimum regulatory limit of 10.87 percent.

Post the fund infusion, the government’s stake in the state-run lender went up to 85.85 percent from 79.41 percent at December-end. The bank’s plan to raise capital will also help the government in bringing down its share in the lender.

The public sector lender on Tuesday said it will allot new equity shares by way of public issue, rights issue, qualified institutions placements or in combination in one or more tranches to raise Rs 4,000 crore.

At the end of the third quarter, bank had reported gross NPAs of 17.81 percent and its advances stood at Rs 1.58 lakh crore and deposits at Rs 2 lakh crore.