Private lender IDFC First Bank is planning to raise Rs 2,000 crore ($243.84 million) in equity capital in the second half of this fiscal.

The fund raise follows a reverse merger between parent IDFC Ltd and IDFC First Bank announced earlier this month, Reuters reported.

IDFC First Bank has board approval to raise Rs 4,000 crore. It has already raised close to half that amount through a preferential allotment to IDFC Ltd.

The remaining amount of about Rs 2,000 crore will be raised in the second half, Reuters reported quoting a source.

Shares of the lender have gained 33% so far this year compared to the Nifty banking index, which is up 6.4%.

Over the past three years, IDFC Bank has brought down its bad loans and accelerated deposit accretion to strengthen its fundamentals, allowing it to raise institutional capital with ease,  the source told Reuters, adding that “this would help fund the bank’s growth”.

The bank’s deposit base has risen 47% over a year ago to Rs 1.4 trillion as of March 2023, while its loan book of Rs 1.6 trillion, which was weighed down by infrastructure loans, is now heavily weighted in favour of more healthy retail loans.

Gross bad loans have fallen to 1.65% from 4% in March 2021.

IDFC Bank can grow 25% on a compounded annual basis and gain market share, said brokerage house Emkay in report dated July 7.

It is expected to deliver a return on assets (RoA) of 1.3-1.5% and a return on equity of 12-15% over the next three years despite factoring in capital raise, the brokerage house said.

Following the reverse merger, shareholders of IDFC will be direct shareholders in IDFC Bank, including the Government of India, which will hold close to 11% in the bank.

The government is not likely to seek a seat on the bank’s board, Reuters reported quoting the source.