Boi Holds Tier-Ii Cap Hike Plan

The Bank of India (BoI) has deferred, for the time being, plans to raise its tier II capital through a subordinated bond issue for Rs 500 crore.

"The bank is currently monitoring its requirement for funds. We will watch the accretion to deposits and, correspondingly, credit offtake, and re-examine the need to raise funds some time in November once a clearer picture emerges," said a bank official.

The bank may even go in for an increase in tier II only in the next financial year, the official added.

Bank of India is also one of the collecting banks for the Resurgent India Bonds and has been given a target of $100 million. As per the arrangement, the bank gets to retain 50 per cent of this amount for on-lending, which will increase the availability of funds with the bank. These RIB proceeds will thus negate BoI's need to raise long-term resources for lending to infrastructure projects.

The bank's capital adequacy ratio (CAR) is still above the stipulated minimum of 8 per cent but has fallen over the last year. "Raising CAR through a tier II issue is not a pressing necessity and can be done either through an increase in profits or revaluation of assets. On the contrary, the bank may have to deploy any amount raised now in government securities at a loss, since credit offtake is poor," the official said.

BoI's CAR for the financial year 1997-98 was 9.11 per cent, down from 10.26 crore in the previous year. Its CAR, using the value at risk concept, was 7.81 per cent for the year. The budget for 1998-99 has, however, mentioned that banks must raise their CAR to 9 per cent by 2000 and to 10 per cent soon thereafter.

Bank of India had, earlier in the financial year, tried to raise Rs 200 crore through the private placement market, by issuing seven-year bonds for Rs 100 crore with a 100 per cent greenshoe option. However, the issue did not draw much response since the coupon of 12.5 per cent for a 7-year tenure was low compared to the prevailing market rate. For instance, IDBI's issue of five-year bonds which was open in the market at the same time carried a coupon of 13.5 per cent.