Commercial banks will raise more than Rs. 3,500 crore of equity capital from the domestic capital markets before the end of ‘05-06 to build stronger balance sheets. Every bank planning to enter the primary markets will issue fresh equities to investors.

The RBI wants banks to increase the capital base, which will be a buffer to manage risks as defined by the Basel-II accord. Expectations are that the RBI may press banks to comply with Basel-II norms by the end of ‘06.

The issue of fresh equities by public sector banks will dilute the government’s stake in these banks closer to 51%.

Sensing this need, banks are mobilising capital in the January-March quarter. Bank of Baroda (BoB) plans to raise Rs. 1,700 crore in mid-January. Union Bank plans to raise Rs 600-650 crore by issuing 4.5 crore shares. The public offer will bring down the government’s holding to 55% from 60%. Andhra Bank is planning to raise at least Rs 800 crore. The Hyderabad-based bank is planning to issue 8.5 crore shares. The government’s stake will come down to 51.5% from 63%.

Development Credit Bank will come out with an IPO in March. The bank, which reported a net loss of Rs. 163 crore in FY05, plans to raise Rs. 200-250 crore through its maiden offer.

ICICI Bank, the country’s second largest commercial bank, raised over Rs. 8,000 crore by issuing fresh equity both locally and internationally this month. It sold shares worth Rs. 5,750 crore in the local market and an ADR of Rs. 2,300 crore.

The updated Basel-II framework, released by the Board of International Settlements in Basel (Switzerland), has sought to arrive at significantly more risk-sensitive capital requirements that are conceptually sound and at the same time pay due regard to the particular features of the present supervisory and accounting systems in individual member countries.

(The Economic Times)