OBC revises FY16 capital need from LIC

The requirement has been brought down from Rs 500 cr to Rs 178 crore

Government-owned Oriental Bank of Commerce (OBC) has revised its earlier estimate for equity infusion from Life Insurance Corporation of India (LIC) to Rs 178 crore, after an easing of the rule for determining the amount. The initial estimate was up to Rs 500 crore.

It told the BSE on Saturday that it planned to issue 21.5 million shares at Rs 82.79 each to LIC on a preferential basis. The price was fixed on the rule set by the Securities and Exchange Board of India.

The bank’s stock had closed six per cent higher at Rs 90.6 on the BSE on Friday.

Last month, the Gurgaon-based lender had told BSE it would raise equity capital from the government, the majority shareholder, up to Rs 1,000 crore through a preferential allotment of shares and up to Rs 500 crore from LIC.  

OBC executives said the benefit from modification in the said rule was 25-30 basis points (bps). Common Equity tier I (CET-I) capital will improve by that much in percentage terms, leading to a reduced requirement from LIC, for now.  CET-1 was 7.56 per cent at end-December 2015. Assessment for the next financial year would be made after closing the account books for FY16.

The capital adequacy ratio (CAR) at end-December was 11.14 per cent, well above the nine per cent stipulated by the Reserve Bank of India (RBI).

After issuance of the new shares, LIC’s holding would rise to 14.5 per cent from the present 8.36 per cent. The central government’s stake would come down to 55.17 per cent, from 59.13 per cent. OBC would hold a meeting of its shareholders on March 29 to approve the share issuance.

Last Tuesday, RBI had announced the rule relaxation. Banks may now account for 45 per cent of their revalued real estate assets in CET-1 — paid-up capital, reserves and provisions. Major public sector banks (PSBs) are expected to see their CAR increasing by 20 to 100 bps on easing of norms boost their capital.

According to ICRA, an independent credit rating agency, PSBs will now have to raise tier-I capital of Rs 1,60,000 crore to Rs 2,60,000 crore between financial years 2016-17 and 2018-19. The earlier estimates were between Rs 1,90,000 crore and Rs 3,00,000 crore.