HDFC Bank's CAR to increase to 14 per cent post capital infusion
21 May 2007

HDFC Bank is looking at a 25 per cent loan growth rate, for the funding of which it needs to raise capital, reports CNBC-TV18. Its board had on Thursday approved raising capital of Rs4,200 crore (approximately $1 billion).

The bank has decided to make a preference issue of 1.35 crore shares to HDFC, at Rs1,023.49 per share. The move will reduce the promoter HDFC stake below the current level of 21.5 per cent.

The board has also decided to issue 1.35 crore-preference shares to HDFC so as to raise its stake to 23 per cent of the enlarged capital base. The share issue to HDFC will net the bank Rs 1,381 crore. The balance Rs 2,819 crore will be raised through a domestic public issue or a global issue, the bank said.

Post equity dilution, HDFC Bank can raise up to $660 million from the domestic or overseas market. There is still a lot of headroom available to promoters after the preferential allotment to raise that entire amount through a secondary ADS offering.

Analysts see a dilution in equity but in the short-term the return on equity, which normally hovers between 21-23 per cent for HDFC Bank, will come down to nearly 17-18 per cent. But as the capital starts getting utilized, the RoE will go up to 21-22 per cent.

The Tier-1 capital adequacy ratio, which stands at around 8.6 per cent, will go up to 14 per cent post this capital infusion and this is enough to take care of its growth for the next two-to-three.

Other reports on HDFC Bank