Karnataka Bank to offer shares for rights issue

Karnataka Bank has decided to come out with shares in the ratio of 1:2 for its rights issue.

The board of directors' meeting was held on Friday to decide on the issue.

"At the meeting of the board of directors held today, it has been decided to issue equity shares of the bank on a rights basis in the ratio of 1:2 i.e., one share for every two," the bank said in a regulatory filing.

The private lender said the date of the issue will be fixed later at Rs 70 per share. No reason was cited by the Bank for the rights issue of shares.

A rights issue means the issuer offers shares at a special or discounted rate to its existing shareholders in proportion of their current holding.

Mostly, it is used as a tool by cash-strapped companies to raise money to pay off debt, especially when they are unable to borrow more money.

However, sometimes, companies with clean balancesheets also use a rights issue to fulfil their business requirements.

For the first quarter ended June of 2016-17, the company registered a rise of 11.16 per cent in its net profit at Rs 121.54 crore.

Its gross non-performing assets (NPAs), or bad loans, stood at Rs 1,389 crore at the end of June 2016, constituting 3.92 per cent of gross advances.

Karnataka Bank last month said even though there was a spike in NPAs in line with the industry trend, it was reasonably restricted within the tolerance zone.

"The bank aspires to clock a business turnover of Rs 96,000 crore for 2016-17 comprising deposits of Rs 56,500 crore and advances of Rs 39,500 crore," the bank had said while announcing the June quarter results.

The bank stock closed 4.14 per cent lower at Rs 143.50 on BSE.