June 9 (Bloomberg) -- IDBI Bank Ltd., a lender controlled by the Indian government, plans to raise as much as 40 billion rupees ($680 million) to bolster capital buffers as bad loans increase.
The board of the Mumbai-based bank approved raising the money through a share sale to institutional investors or a follow-on public offer, an exchange filing showed today. No timing for the transactions was specified.
The fundraising will help the lender, which had outstanding loans of 2 trillion rupees as of March 31, to absorb increased soured debt. Gross bad loans at IDBI Bank rose to 4.9 percent of total lending as of March from 3.2 percent a year earlier, exchange filings showed.
The company had a capital adequacy ratio of 11.68 percent as of March 31, lower than the 12 percent required by the government. G. S. Sandhu, the Indian finance ministry’s banking secretary, said earlier this month that the government will allow its stake in several banks fall as low as 51 percent to let them raise equity capital.
IDBI Bank shares rose 1.4 percent to 113.80 rupees at 11:27 a.m. in Mumbai today, compared with a 0.9 percent gain in the S&P BSE Bankex Index, which tracks 12 Indian lenders.
The government owns 76.5 percent of IDBI, data compiled by Bloomberg show. The bank was started in 1964 by an act of parliament as a subsidiary of the Reserve Bank of India. The government took ownership in 1976 and the lender was listed in 1995.
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