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C.J. Punnathara

Kochi , Dec 29

Federal Bank plans to enter the capital market shortly to mobilise fresh resources to fund some of its strategic investment projects.

"We should be entering the capital markets some time next fiscal either through a rights or public issue," said Mr M. Venugopalan, Chairman.

"However, it is still too early to speculate on any specific timeframe or the quantum that we are likely to mobilise from the market."

Federal Bank, in association with IDBI and international finance service provider Fortis, is set to launch a life insurance company to be called IDBI Fortis Life Insurance.

IDBI is slated to hold 48 per cent equity in the venture, while Fortis and Federal Bank will hold 26 per cent each.

The project, which was slated to become operational by February 2007, could be delayed since IDBI is still awaiting final clearance from the Government.

On its part, Federal Bank is slated to provide Rs 190 crore over the next seven years as equity capital for the project.

The bank proposes to part-finance this project by tapping the capital market.

It also proposes to raise resources for funding its inorganic growth process.

"There is fierce competition in the banking sphere and we have to grow both organically and inorganically to remain competitive," Mr Venugopalan said.

But he conceded that even in the mergers and acquisitions front there is tremendous competition, even as the list of possible takeover candidates with proven financial strength has been diminishing over the years. With rising cost of funds and diversion of resources from banks to capital markets and real estate, the competition is equally fierce in building fresh deposits.

Though Federal Bank still remains a net seller in the call money market, pressure has been building up among several banks on the liabilities front.

The fact that interest income came under the purview of income tax, while long-term capital gains from the stock market was exempted, has resulted in erosion of bank deposits.

This provided the right impetus for bank deposits to be diverted into the stock markets and real estate, Mr Venugopalan said.

The growth in deposits of Federal Bank has also not been as strident as in the past.

NRI deposits have been one of the prime casualties, dropping from 38 per cent earlier to 28 per cent at Rs 5,400 crore out of a total deposit base of Rs 19,000 crore.

While remittances continue to grow at over 30 per cent, NRI deposits are expected to record 15-20 per cent growth this year.

These funds continue to seek avenues of higher returns in stock markets and real estate, bank sources said.

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