Government owned Bank of Baroda is exploring a number of options for raising capital including issue of additional tier-1 bonds, qualified institutional placement (QIP) and monetising its investments in up to two of its non-core assets.

A senior official at Bank of Baroda said perpetual bonds are proposed to issue but he did not give quantum and said if required we will bring out a QIP in the next quarter or two to support its tier-1 capital given that it has good valuations. He said, “Market conditions are better now and valuations are also good because the true financial performance is reflected.”

Banks are required to maintain a minimum capital adequacy ratio (CAR) of 9% as well as +1.25% of counter cyclical buffer and a tier-1 ratio of 7% as per current norms under Basel-III.

Bank of Baroda is at comfortable zone as its CAR is 12.24%, tier-1 capital ratio is 9.93% and common equity tier-1 is 8.98%.

CAR is a measure of bank’s financial strength which is expressed as a ratio of capital to risk-weighted assets.

HDFC Bank and Kotak Mahindra Bank recently raised funds of Rs 8,000 crore and Rs 5,800 crore through issue of perpetual bonds and QIP respectively.

State Bank of India (SBI), country’s largest lender also stated that it is planning to raise funds through the follow-on public offer or QIP in the year. The Board has also approved to raise Rs 15,000 crore.

Read also: https://www.mcrworld.com/finance-ministry-expects-6-banks-raise-funds-fpo/

In the same way, Bank of Baroda has taken approval from shareholders to raise Rs 10,000 crore via the issue of both equity and debt instruments while other lenders are Central Bank of India, Oriental Bank of Commerce, Vijaya Bank and Dena Bank among others.

Government has conditioned the capital infusion based on performance. Most of the public sector banks will need to raise capital from the market to meet their provisioning needs and comply with the capital adequacy requirements under the Basel-III norms.

Read also: https://www.mcrworld.com/president-gives-nod-banking-ordinance-amend-banking-regulation-curb-npas/

Bank of Baroda’s Chief Executive Officer and Managing Director- PS Jayakumar said that the bank will not have requirement of funding from the government and the bank will raise capital for growth.

The bank has Rs 5,000-Rs 6,000 crore valued non-core businesses including stake in UTI Mutual Funds and in NSE.

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