The Hindu Business Line : Recoveries, stake sale may boost Federal Bank profit

Chennai, July 12 Federal Bank, which transferred about Rs 500 crore of securities from ‘available for sale’ to ‘held to maturity’ in the first quarter, may take a depreciation hit of Rs 25 crore in the period. However, recoveries from NPAs and profit made on sale of stake in Weizmann Homes would more than make up for the depreciation, analysts who track banking industry say.

It is learnt that the bank made a profit of close to Rs 10 crore when it sold its 30 lakh shares (17.25 per cent stake) in Weizmann Homes Ltd to AIG. Also, it recovered about Rs 45 crore from a Mumbai-based real estate company. Analysts expect the bank’s recoveries in the first quarter to be around Rs 70 crore.

Rights issue

In February, the bank’s board had taken a decision to come out with a rights issue in the ratio of 1:1. It is learnt that the issue will happen in the second quarter. The pricing is yet to be finalised, but analysts who have been in touch with the bank, say that the bank might raise close to Rs 1,500 crore.

As at end-March 2007, Federal Bank’s capital adequacy ratio stood at 13.44 per cent. It had a paid-up equity capital of Rs 85.6 crore and reserves of Rs 1,410 crore.

While there is no pressure on the bank to raise capital, the resources generated from the rights issue would be cheaper than deposits.

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