07 Apr , 2022 By : monika singh
HDFC Bank on Wednesday said it will be seeking the approval from its board to raise capital worth Rs 50,000 crore through various instruments over the next 12 months. The bank recently announced its plan to acquire its parent Housing Development Finance Corporation (HDFC) in a deal that could require it to beef up capital buffers.
The instruments likely to be used for the fund-raise are perpetual debt instruments, or additional tier-I (AT-1) bonds, tier-II capital bonds and long-term bonds for financing of infrastructure and affordable housing. The proposal for capital-raising shall be placed before the board on April 16 when it meets to consider the bank’s financial results for Q4FY22.
Since HDFC is a housing finance company (HFC), it was not expected to maintain cash reserve ratio (CRR) or government bonds in the form of statutory liquidity ratio (SLR) with the central bank. As HDFC Bank’s asset and deposit base increases after the merger, it will need to increase the money it holds as reserves. The two institutions have requested the Reserve Bank of India (RBI) to grant them two-three years to become fully compliant with reserve ratios on the existing base of HDFC’s assets.
The cumulative quantum of CRR and SLR that banks must maintain now stands at 22% of net demand and time liabilities – 18% for SLR and 4% for CRR – as against 27?rlier. HDFC already has bonds worth Rs 80,000 crore having infrastructure status, which will therefore not be factored in for the purposes of reserve calculations. Excluding that, the requirement to meet reserve-related norms could be Rs 90,000-100,000 crore, according to HDFC Bank.
Estimates by analysts peg the additional capital requirement at anywhere between Rs 1.7 trillion and Rs 2.2 trillion, inclusive of funds required to meet priority sector lending (PSL) requirements.
HDFC Bank’s capital adequacy ratio stood at 19.5% as of December 31, 2021 and the common equity tier-1 (CET-1) ratio was 17.1%. In a recent report, Emkay Global Financial Services said the merged CET-1 ratio of the bank will be higher by about 100 basis points (bps) than that of the standalone bank. The regulatory capital requirement in the bank is lower as compared to that of the HFC, and thus it would lead to some capital release. “With HDFC extinguished as a foreign promoter, the FII (foreign institutional investor) limit on the new base of share capital (based on the share swap ratio of 42 HDFC Bank shares for 25 HDFC shares) will increase to 8% from the current 4%,” the report said.
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