IDFC First Bank Limited

Hi guys,
IDFC bank Q4 Fy22 capital adequacy ratio was 16.8% and it was at 15.77% in Q1 Fy23. I think for this quarter it should be close to 15.10% to 15.30%.

Next quarter the probability to raise money is very high , if they don’t raise money next quarter then the CAR might be close to 14.5% levels.

I have a few question would request if anybody could answer them.

1. Will they raise money? because they can grow this year without raising which will result into higher ROE but if they raise through TIRE 1 that would result into lower ROE than the ROE without capital raise.(this is because the money raised will not generate return immediately)
   Will the management want higher ROE for this year or a good amount of capital in their balance sheet?

2. The CEO has been signaling that in case they have to raise money that would be through TIRE 2. Recently SBI raised TIRE 2 capital at 7.56% when the GOI 10yrs yield was 10 to 15bps lower than current levels. So if they raise TIRE 2 it would be close to 8% because the credit risk is higher here compared to SBI and yield have gone up .
   Will they consider raising money at these rates?

   Over the next 2yrs the inflation is expected to be lower than 6% in this case the cost of their TIRE 2 will be further high.(Interest rates going down cost of debt increasing)
   Will they wait to raise money at lower rates or raise at higher rates?

3. If a bank expects high ROE in future which is going to be higher than cost of equity in this case they should raise money thorough equity because this prevent cash outflow.
   So currently equity is favorable and debt unfavorable. Will they raise through equity?

4. Since they are preforming so well they should have the ability to do QIB placement in case of Tire 1 capital raise. A bank will any day want QIB placement because the price decided in this case is highest compared to preferred share or warrants.
   Does the bank have the ability to do a QIB? What conclusions should we make if they don’t raise through QIB?

If they do a QIB placement in this case we get to know the price that the market(QIB) and management think as a fair price for this bank.

Just to add in the end, last year they raise money through QIB placement at 57rs and in 2021 they raise money through preferred shares at 23rs.