The Hindu : Business : IndusInd Bank weighing options to shore up capital

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Saturday, Nov 17, 2007
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IndusInd Bank weighing options to shore up capital

Special Correspondent

The bank prefers a strategic partner

Fund raising will be completed by this year
May go in for a follow-on GDR issue

CHENNAI: IndusInd Bank is working on a couple of options to raise Tier-I capital.

Indicating this in an informal chat with presspersons here on Thursday, Bhaskar Ghose, Managing Director and Chief Executive Officer (CEO), said the bank would ideally prefer to raise tier-I capital by inducting a foreign bank as a strategic partner. A strategic partner would pay a premium to the market unlike a fund, which would prefer a discount. Hence, the preference for a strategic partner over the fund, Mr. Ghose said. At the moment, RBI guidelines do not permit a bank to pick up more than five per cent stake in another bank. “This is a stumbling block” for inducting a foreign bank as a strategic partner, he said. The CEO said a lot of foreign banks were keen to set up a base in India much before markets were opened up for equity participation by one bank or another. The other option for IndusInd Bank was to go in for a follow-on GDR issue.

IndusInd Bank would take an appropriate call on these options soon, he said. He indicated that the fund-raising exercise would be completed by the end of the current financial year.

Fielding a range of questions, the Managing Director said the bank’s average cost of fund was in the vicinity of 7.7 per cent. Low cost deposits (current account and savings account or CASA) today accounted for 17 per cent of the bank’s total deposit of Rs. 15,400 crore.

Mr. Ghose said the bank’s profit for the first-half of the current financial year dipped to Rs. 30 crore, down from Rs. 57 crore in the same period last year. This was caused by an 80 per cent fall in profits in the first quarter. He was confident that the bank would post higher profit this year. Last year, it reported a net profit of Rs. 68 crore.

The Managing Director said the bank was put in a spot, thanks to changes in norms relating to securitisation of assets. The bank became a major seller of assets following its takeover a few years ago of Ashok Leyland Finance, a major player in the securitisation arena then. Following these changes, the capital shore-up funds were deducted from the bank’s capital for the purpose of calculating capital adequacy. Capital shore-up funds are those set aside for paying the buyer of the loan asset in case there is a default.

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