3 Indian banks set to raise capital

Bank of Baroda, Bank of India and Corporation Bank eye acquiring total $1.2bln for expansion.

Public sector banks are in the process of planning their capital requirements for the next financial year to meet their expansion plans. Bank of Baroda and Bank of India are planning to raise Rs 2,000 crore ($438.31 million) each, while Corporation Bank is targeting Rs 1,500 crore ($328.73 million) in the coming fiscal.

The expansion plans will be triggered by strong economic growth, rise in industrial production, fresh capex and an improvement in consumer confidence levels.

"The capital raised will be towards Tier-I and Tier-II capital of the bank," said J M Garg, chairman and managing director of Corporation Bank.

Reserve Bank of India has prescribed a minimum Tier I capital adequacy ratio (CAR) of 6% and overall minimum capital adequacy of 9% for commercial banks with up to 50% of it in the form of Tier II, comprising subordinated bonds and free reserves.

"But as credit growth is expected to pick up, we will need additional capital," said S Kothandaraman, general manager, Bank of India.

The bank has raised Rs 2,300 crore ($504.11 million) worth of capital in the current fiscal. As per an estimate of HDFC Securities, credit for the banking system is expected to grow at 19% in FY11 and 20% in FY12, mainly led by infra and corporate related credit demand.

View the full story in DNA.