The Hindu Business Line : Federal Bank moving nearer to second public issue this year

The bank's capital adequacy ratio is 12 per cent now. With credit growing at over 11 per cent and pressures on capital from having to comply with Basel-II norms, the bank would need to raise money from the market, said Mr S. Santhanakrishnan, Director, Federal Bank.

While stressing that the bank's board had yet to take up the issue of raising capital, Mr Santhanakrishnan ruled out any preferential allotment.

"Most probably it will be a public-cum-rights issue," he said.

On the size of the issue, he said that in his opinion the bank would need to raise between Rs 650 crore and Rs 750 crore.

Mr Santhanakrishnan also said that the Federal Bank was "aggressively looking at" acquisitions and two target banks were under consideration.

Refusing to give more details, he said that an announcement could be made soon.

Both Mr Santhanakrishnan and the bank's Executive Director, Mr P.R. Sankaranarayanan, spoke to newsperson on the strengths of the bank.

Mr Sankaranarayanan said that the bank's investment portfolio of Rs 4,950 crore was well protected against any interest rate rise.

Half of the investment book comprises high-yielding securities, with coupon rates of over nine per cent.

Besides, the bank has taken full advantage of the RBI's permission to transfer securities from `held for trading' and `available for sale' categories to `held to maturity' in the first half of the current year.

It had to book depreciation of Rs 65 crore, but now the entire investment book is almost risk-free.

Mr Sankaranarayanan said that the bank intended to hold on to the high-yielding securities and earn interest on them, rather than sell them off.

The officials said that the bank's average cost of deposits stood at 5.8 per cent.

About Rs 4,600 crore of the total deposits of Rs 13,000 crore - about 35 per cent - are NRI deposits.

The Kerala-based bank intends to leverage its NRI clientele to cross-sell other financial products and earn non-interest income.

Mr Sankaranarayanan said that Federal Bank's net and gross NPAs stood at 1.8 per cent and seven per cent respectively, which implies substantial provisions that could be written back if the assets are recovered.

In the first nine months of the current year, the bank made cash recovery of Rs 133 crore, about 25 per cent more than in the last year, he added.

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