Query on Banking Basics

The most practical way of arriving at incremental annual profits that can be arrived at by this incremental equity raised, is to apply the marginal Return on Equity on this equity capital. This could be simplistic in a bank that is undergoing a lot of changes in its A & L profile, operational activities etc. They can be arrived at as adjustments.

Marginal ROE will probably be the latest quarter ROE pre raising of this equity capital. So if the last quarter annualized RoE is say 15%, then you could say this adds Rs 105 crores of PAT on Rs 700 crore of equity capital.

You can then make adjustments based on the specific context…maybe capital is raised to cover for anticipated provisions, to cover for CAR for new Basel rules, or to expand credit faster that internal accruals will allow while maintaining CAR.

Also from your query it appears that you seem to indicate that only capital raised as equity is what you will be able to disburse. It will of course (and better be) be much more as pointed out by @Pradeep_Jadhav

Raising equity also allows the bank to raise liabilities, i.e. deposits and the deposits + equity + other liabilities will be used for generating assets, most of which will be advances. So it is not just one activity. It is both - on the liability side as well.

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