HDFC Bank's capital raising to lift capital buffers by 300 bps

The Rs 8,500-crore infusion last week through a preferential allotment to parent HDFC will increase the common equity tier 1 (CET1) ratio by about 1 percentage points to 13.3 per cent from 12.3 reported in March 2018, global rating agency Moody's Investor Service said in a report today.

This is the first tranche of the Rs 24,000-crore capital raising plan announced last December.

"If the bank manages to raise the remaining planned capital, its CET1 ratio will increase by a total of 3 percentage points to 15.2 per cent," it added.

The capital infusion is "credit positive" as it will strengthen its loss-absorbing buffers, while supporting balance-sheet expansion, the agency said.

Moody's vice-president for financial institutions group, Alka Anbarasu, further said even though HDFC Bank is more profitable than its peers, the internal capital generation "has lagged its risk-weighted assets growth" in the past five years.

The preferential share sale to the parent is part of a Rs 24,000-crore capital raising plan announced earlier. The remaining money will be raised from overseas investors, for which the bank has got necessary government approvals.

The bank has not yet revealed the exact timeline for raising the second tranche and the agency says it will not be difficult for the bank to raise the money from equity markets.

"We expect that the capital raise will support HDFC Banks credit growth of 20-25 per cent over the next few years. HDFC Bank is growing at a faster pace than other banks: its average loan growth has been 22 per cent over the past three years, versus the  average of 6.5 per cent for the system," Anbarasu said.