Central Bank to sell 4% stake to LIC for Rs 581 cr

Will help meet the bank's capital requirement of Rs 2,000 crore this fiscal

State-run lender Central Bank of India has said it is in the process of selling 4% of its stake to Life Insurance Corporation through an institutional placement for Rs 581 crore to meet its capital requirement of Rs 2,000 crore this fiscal.

"We will be needing Rs 2,000 crore for our business plans this financial year. We did go to LIC and we are getting around Rs 581 crore from them," chairman and managing director Rajeev Rishi said here over the weekend.

He however, did not specify a timeline for the deal with LIC.

The funds which the state-run bank will get from the life insurance major will be through private placement of shares and it will bring down the government holding to 84% from the present 88%.

Rishi said once the bank gets funds from LIC, it will then approach the government for around Rs 1,500 crore of additional capital.

The government has earmarked only Rs 11,200 crore for fund infusion into public sector banks this current fiscal, down from Rs 14,000 crore last fiscal.

Rishi said he is hopeful of getting Rs 1,500 crore from the government but in case the bank does not get the full amount, it would look for other options.

"Even if we assume that the government is not able to meet our entire requirement, then also we have enough resources, such as divestment of stake in Infrastructure Leasing and Financial Services (IL&FS), to raise funds," he said.

Meanwhile, the bank reported an over eight-fold jump in its net profit at Rs 192 crore in the June quarter as against Rs 22 crore in the same period last fiscal. The sharp increase in the profit was on account of low base effect in the first quarter of the last fiscal.

Its net interest margin, which is the difference between what is what it pays to depositors and what it earns from on-lending, improved to 2.87% in the reporting quarter from 2.68%.

Gross non-performing asset in the quarter rose to 6.15% from 6.03% in the year ago period, but net NPAs declined a tad to 3.62% from 3.85% as the bank could recover Rs 208 crore.

Rishi said the bank plans to contain its gross NPAs at 5.61% and net NPAs at 3.08% in current fiscal. Its capital adequacy ratio stood at 9.62%, with tier I at 7.12 at end-June.