RBL looks at raising Rs 1 lakh crore from investors, small banks fare better at exercise: Report

After swirling economic uncertainties saw large-scale sell-off in the first quarter, small banks have now moved swiftly to raise capital from investors to bolster their balance sheets. Among these, RBL Bank is the top gunner – looking to raise as much as Rs 1 lakh crore.

Overall, small banks such as RBL Bank, DCB Bank and Federal Bank have fared far better than bigger banks such as Axis Bank and ICICI Bank when it comes to reviving investor interest via share sale, The Economic Times reported.

RBL Bank raised Rs 2,025 crore via a qualified institutional placement (QIP) in December 2019. It may likely be the first to raise another Rs 1,000 crore via preferential allotment this year as it looks to offset impact from the COVID-19 pandemic, it added.

A source told the paper that preferential issue was the method of choice as the process was quick and required fewer investors.

“Not all existing investors may be ready to put money today hence a preference issue is under serious consideration … and could be completed in the next couple of months. The idea is to take capital when it is available as many large lenders are shoring up their base and global liquidity is also benign," the source added.

Moneycontrol could not independently verify the report.

They added that the bank wants to ensure preparedness amid uncertainties due to the COVID-19. Notably, RBL has capital adequacy at 16.5 percent, double the mandated 9 percent.

RBL Bank did not respond to ET’s queries.

Among the other small players, Federal Bank Executive Director Ashutosh Khajuria said the bank has capital adequacy of 14 percent, but wants to “be prepared for any eventuality.” It has gotten the green light from shareholders to raise up to Rs 12,000 crore via debt-equity mix.

DCB Bank CEO Murali Natrajan told the paper the capital raise is for “stressed times and future growth.” The bank has an enabling resolution from shareholders to raise Rs 500 crore equity. He however added that “there is no hurry” as the bank's capital adequacy is at 17.75 percent.

Sector analysts say the sector has learnt from experiences of foreign banks during the great financial crisis of 2008, where banks that delayed capital raising suffered more as the economic shock was prolonged.

“The true impact of COVID and moratoriums will only be known by third quarter FY21 and therefore important that banks create sufficient capital reserves for any stress scenario,” Abhinav Bharti, head of India ECM, JP Morgan said.