Date:23/02/2005 URL: http://www.thehindubusinessline.com/2005/02/23/stories/2005022301920600.htm

Back Dhanalakshmi Bank plans to raise Rs 20 cr

M. Ramesh

Chennai , Feb. 22

DHANALAKSHMI Bank plans to raise Rs 20 crore by way of Tier-II capital next week. The bank will issue bonds of 63-month tenor and expects to place them at a rate between 7.9 per cent and 8.2 per cent, the Managing Director and CEO, Mr T.R. Madhavan, told Business Line on Monday.

The bank's capital adequacy ratio (owned funds to loans given) is today 10.37 per cent; Mr Madhavan expects it to go up to 11.5 per cent by the year-end, with ploughed-back profits. With the Tier-II capital coming into its books, the bank would not need to raise equity, Mr Madhavan said.

He said that the bank would be able to raise funds at a rate lower than the RBI-prescribed ceiling — two percentage points above the yield of G-Sec of same duration. (Today, the 5-year G-Sec is quoting at 6.31 per cent.)

With average cost of funds at 5.27 per cent and average yield on advances at 9.54 per cent (as of December 31, 2004), the bank has a comfortable spread of 4.27 per cent. Mr Madhavan said that spreads had improved over the last one year. As of December 31, 2003, the bank's average spread worked out to 4.02 per cent.

This `comfortable spread' has two near-term implications. First, the bank can afford to raise deposit rates to get more funds. In fact, it expects to do so shortly. Second, it can price loans attractively for good customers.

On the investment front, Dhanalakshmi Bank has a portfolio of Rs 783 crore, of which Rs 546 crore is in the `held-to-maturity' (HTM) category. As much as Rs 456 crore was shifted into HTM recently, taking advantage of the RBI's one-time permission to move securities up to a value equivalent to 25 per cent of a bank's net demand and time liabilities into HTM.