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IDBI to shore up capital adequacy ratio - Views on News from Equitymaster
 
 
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  • Nov 26, 1999

    IDBI to shore up capital adequacy ratio

    The Industrial Development Bank of India (IDBI) has finalised a twin issue of bonds to raise upto Rs 15 bn towards its tier II capital. This has been reported by a leading national daily. The bonds are being raised at yields of 12% and 12.25%.

    IDBI is India's leading development financial institution and the 10th largest development bank in the world. It has also promoted IDBI Bank, IDBI Capital Services, IIMCO (asset management) and SIDBI (for funding small-scale industries).

    IDBI currently has a capital adequacy ratio of 12.7%. With the economy picking up pace and the need to clean the balance sheet of its high level of non performing assets, the institution would require a large amount of capital. Moreover, there is a possibility that the Reserve Bank of India would require that the minimum capital adequacy ratio be raised.

    IDBI's move is justified on these grounds. Furthermore, the decision to place bonds with varying maturities (63 and 87 month) and low yields will further improve liquidity at low cost.

    The financial institution, however, needs to attach prime importance to the cleaning up of the high level of non-performing assets that exist on its books.

    Market View:
    Analysts have rated the stock as a 'BUY' mainly on account of the economic recovery, which is expected to result in increased business activity. Also, this pick up in the economy will help IDBI to recover atleast a part of its large non performing loans, which registered a large increase during the recent economic slowdown.

     

     

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