BoB directors to finalise plans to raise capital at Jan 8 meeting

Whole-time directors of the Bank of Baroda (BoB) will meet on January 8 to finalise plans to raise capital through debt instruments. This is to enhance capital adequacy of the public sector bank (PSB).

BoB is attempting to integrate operations and focus on synergy after two PSBs – Vijaya Bank and Dena Bank – merged with it on April 1, 2019.

The meeting of the Capital Raising Committee (CRC) of whole-time directors is scheduled to be held on January 8, the company told the BSE.

Debt capital comprises of additional tier-I bonds and tier-II bonds.

On January 2, the bank raised tier-II capital worth Rs 920 crore through Basel III compliant bonds carrying coupon of 7.44 per cent. It raised money through private placement of bonds.

BoB remains adequately capitalised with tier-I and overall Capital Adequacy Ratio (under Basel III) at 10.91% and 12.98%, respectively, as on September 30, 2019 (they were 9.72% and 11.77%, respectively, as on April 1, 2019). BoB has also reported profits during the first half of financial 2019-20 (FY20). 

CRISIL believes BoB will be able to maintain adequate capitalisation over the medium term, backed by capital support from the Union government.

Majority ownership creates a moral obligation on the government to support PSBs, including BoB. The government allocated Rs 70,000 crore for capital infusion in FY20, of which Rs 55,250 crore was proposed to be infused in the 10 merged PSBs. BoB was allocated Rs 5,375 crore in FY18 and Rs 7,000 crore in FY20. 

CRISIL believes that the government will continue to provide distress support to all PSBs, including BoB, and will not allow any of them to fail. It will also support them in meeting Basel III capital regulations.