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Why is ICICI Bank mulling a $3 billion capital raise? Brokerages try and answer

Why is ICICI Bank mulling a $3 billion capital raise? Brokerages try and answer

Why is ICICI Bank mulling a $3 billion capital raise? Brokerages try and answer
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By Pranati Deva  Jun 25, 2020 1:20:18 PM IST (Published)

Brokerages say that they are unclear on the motive behind ICICI Bank's possible capital raising exercise at this time and are awaiting management commentary for clarity. However, they offer possible reasons. 

ICICI Bank is mulling raising around $3 billion in a share sale, a media report stated. The report added that the lender is planning to start discussions with potential advisers soon and is targeting the share sale in September.

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Brokerages say that they are unclear on the motive of the capital raise at this time and are awaiting management commentary for clarity. However, they offer possible reasons.
As per Macquarie, the capital raise would further strengthen the lender's balance sheet but it doesn't necessarily indicate any asset quality issues. It added that post the raise, the common equity tier-I  (CET-1) ratio is likely to improve by 300 bps to 16.3 percent.
Meanwhile, Morgan Stanley stated that the bank does not need to raise capital for potential NPLs and will await management commentary. It also added that the stock reaction to this report will depend on how it articulates growth potential. The stock has declined around 1 percent post the reports.  For the year, the stock is down 34 percent which is in line with a 33 percent slump in the Nifty Bank index.
Jefferies believes that the capital raise may enable the bank to look for portfolio acquisitions or other M&A opportunities. It will dilute the near term RoEs but beef up the capital position of the lender, Jefferies added.
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