The Hindu Business Line : SBH to raise Rs 550-cr tier-II capital

With no signs of Parliament taking up amendments to the SBI (Subsidiaries) Act, State Bank of Hyderabad (SBH), which was pinning hopes on the amendments to pave way for its initial public offer (IPO), is now going in for raising Rs 550-crore of funds through issue of subordinate debt bonds.

According to the sources in the know, the bank has opted for issue of subordinated bonds of Rs 500 crore with a green shoe option of 10 per cent, taking the total to Rs 550 crore.

SBI Caps and Citi Bank are acting as arrangers to the private placement of the bonds. The issue would hit the market on Thursday and the bonds would be listed on the Bombay Stock Exchange.

Thanks to the fundamentals and good rating of AAA from two of the leading rating agencies - ICRA and CARE, the bank could peg its bonds at 8.8 per coupon rate for tenure of 115 months.

When contacted, the SBH Managing Director, Mr Amitabha Guha, told Business Line that, "The bonds issue of Rs 550 crore helps augmenting the capital base of the bank to meet its future capital adequacy requirements."

With the deadline for implementation of Basel-II norms fast nearing, the bank felt the immediate need to raise funds to augment the capital adequacy ratio (CAR). "The Basel-II implementation is expected to bring down the bank's CAR to around 9.08 per cent from 11.32 per cent. To maintain the CAR at the current level of over 11 per cent, the bank is tapping the private placement market on Thursday (September 28) with the bonds issue," the SBH Chief General Manager, Mr R.P. Sinha, said.

According to him, the bank expected substantial growth in its business activities and operations in the coming years. The risk-weighted assets of the bank were expected to increase with the rise in the business level.

As against the earlier set target of reaching Rs 67,500 crore business by this fiscal-end, the bank has already reached Rs 60,000 crore mark, the first associate bank of SBI to achieve so. SBH is now revising the current fiscal target to around Rs 72,000 crore.

Stating that SBH has successfully raised Rs 1,000 crore of deposits through special deposit mobilisation programme last fortnight, he said the bank is well poised to reach Rs 1,00,000 crore-business mark by March 2008.

"The capital requirement will also increase due to Basel-II norms. Increase in tier-I capital through plough-back of profits alone may not be enough to enable the bank to maintain sufficient CAR," Mr R.P. Sinha said.

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