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Rediff.com  » Business » Rights issue on cards for govt banks

Rights issue on cards for govt banks

November 30, 2012 11:05 IST

Ahead of the implementation of Basel-III norms in the banking sector, public sector banks are looking to raise capital, with a rights issue being the preferred mode of capitalisation.

Several public sector banks are of the view that allowing banks to raise capital through a rights issue, instead of a preferential allotment of shares being subscribed by the government. It would give all shareholders an equal investment opportunity.

"We have asked the government for additional capital infusion. In case, the government does it through preferential allotment of shares, other shareholders do not get the opportunity to invest. Rights issue is an option for raising capital," said K R Kamath, chairman and managing director, Punjab National Bank.

"In the last meeting with the government, we suggested banks be allowed to raise capital through a rights issue. At IOB, our minimum capital requirement is about Rs 1500 crore (Rs 15 billion)," said M Narendra, chairman and managing director, Indian Overseas Bank.

Kolkata-based UCO Bank might go for a rights issue of up to Rs 1800 crore (Rs 18 billion) by the end of this financial year. The bank would approach the government for capitalisation, either in the form of a preferential issue or a rights issue, soon, said N R Badrinarayanan, executive director.

This apart, the bank might also raise up to Rs 1,000 crore (Rs 10 billion) as tier-II bonds in the next few months, he added. UCO Bank's capital adequacy ratio was 12.27 per cent at the end of the last quarter.

Indian Overseas Bank is looking for capitalisation of about Rs 1,500 crore. Recently, United Bank of India, had also obtained board approval to raise as much as Rs 300 crore (Rs 3 billion) via a rights issue.

This apart, the bank is planning to raise about Rs 250 crore (Rs 2.5 billion) as perpetual debt in several tranches over the next quarter. The bank has a shareholders' approval to raise Rs 250 crore through perpetual debt, with an overallotment option of raising another Rs 250 crore.

"In our board meeting on November 21, we discussed the requirement for capitalisation in the bank before we migrate into Basel-III norms. We evaluated all possible options, including perpetual bond issuance and rights issue," said Bhaskar Sen, chairman and managing director, United Bank of India.

Indian banks would need about Rs 500,000 crore (Rs 5 trillion) of additional capital to meet the Basel-III norms, the Reserve Bank of India said in its annual report for 2011-12.

According to Basel-III, which will come into effect from January 1, 2013, banks will have to maintain a minimum overall capital adequacy of 11.5 per cent (against the current nine per cent) by March 31, 2018.

The government has estimated capital requirement of Rs 15,000 crore (Rs 150 billion) for banks this year, while an infusion of Rs 90,000 crore (Rs 900 billion) has been estimated during the next five years to meet Basel-III norms.

Implementation of the guidelines will begin January 1, 2013 and the process will be completed by March 31, 2018.

Namrata Acharya in Kolkata
Source: