Federal Bank to raise Rs 2,500 crore as growth capital

Kerala-based Federal Bank is looking at raising up to Rs 2,500 crore through equity to improve its capital adequacy ratio, while growing at an expected rate of 18-20 per cent in the near future. The bank is also looking at a strategic equity partner for its non-banking finance arm Fedbank Financial Services.

 
Bank has received the approval of board and shareholders for raising funds and is in the process of evaluating the timing and mode, which is expected to be finalised in the next couple of months, said Shyam Srinivasan, managing director and chief executive of Federal Bank.

"At present, the capital adequacy ratio (CRAR) stands at 12.39 per cent and we are consuming about 120 basis point of capital every year. We are preparing the bank for our next wave of growth and also meeting all our capital adequacy ratio. If we raise funds worth up to Rs 2,500 crore by March, 2019, we will be looking at a 12.5-13 per cent capital adequacy and we will be always be a 100 basis point higher than the regulatory requirement," he said.

The bank has seen a good growth in FY17, and is expecting around 18-20 per cent growth rate during this year. It is seeing a good growth in retail, SME and corporate sectors.

It is also seeking shareholder's approval to raise around Rs 4,000 crore by issuing various debt securities, so that it can utilise it if the lending growth comes up.

The NBFC arm, which has a credit book of Rs 1,000 crore and a networth of around Rs 220 crore, is looking at the next wave of growth to take it to Rs 2,500 crore in the next 12-18 months and they would require another Rs 200 crore to achieve this. A full-fledged formal process is underway to identify a strategic partner for capital infusion. Federal Bank would continue to hold the majority 74 per cent, post transaction, he added.

The bank's total credit during the last fiscal year was about Rs 75,000 crore, of which around Rs 30,000 crore were to corporate entities. Small and medium enterprises (SMEs) and the agricultural sector received around Rs 25,000 crore, while credit extnded to the retail stood at around Rs 21,000 crore. They all grew by 18-20 per cent in a steady state. Corporate sector's growth declined by Rs 5,000 crore during 2014-15, but it bounced back thereafter to register a 30 per cent gowth in the previous financial year. 

Meanwhile, retail rose nearly 27 per cent and SME grew by 18 per cent.

Total business stands at around Rs 1,71,000 crore as of March, 2017, being driven by a good credit flow and lower cost deposits.

Commenting on the foreign remittance, he said that the Qatar crisis leading to the severing of ties among Gulf countries, could increase the foreign remittance in a short term. From a long term perspective as well, there would be other issues arising out of the conflict in case a solution is not found soon.

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