Rights issue on cards for public sector banks

Ahead of the implementation of Basel III norms in the banking sector, public sector banks are looking for raising capital, with rights issue  being the preferred mode of capitalization.

Several public sector banks are of the view that allowing banks to raise capital through rights issue, instead of preferential allotment of share, being subscribed the government, would give all shareholders’ an equal investment opportunity.

“We have asked the government additional capital infusion. In case, the government does it through preferential allotment of shares, other shareholders do not get an opportunity to invest. Rights issue is an option for raising capital,” said K R Kamath, chairman and managing director, Punjab National Bank. 

 

“In the last meeting with the government, we suggested that banks should be allowed to raise capital through rights issue. At IOB, our minimum capital requirement is about Rs 1,500 crore,” said M Narendra, chairman and managing director, Indian Overseas Bank.

Kolkata-based UCO Bank may go for rights issue of up to Rs 1,800 crore by the end of this financial year. The bank would approach the government for capitalization , either in the form of preferential issue or rights issue, soon, said N R Badrinarayanan, executive director, UCO Bank.

This apart, the bank might also raise up to Rs 1000 crore as tier II bonds in the next few months, he added. UCO Bank’s capital adequacy ratio was 12.27 per cent at the end of last quarter.

Indian Overseas Bank is also looking for capitalization of about Rs 1500 crore to beef up its capital. Recently, United Bank of India, had also obtained board approval to raise as much as Rs 300 crore via rights issue.  This apart, the bank is planning to raise about Rs 250 crore as perpetual debt in several tranches over the next quarter. The bank has a shareholders’ approval to raise Rs 250 crore through perpetual debt, with a green shoe option of raising another Rs 250 crore. 

 “In our board meeting on November 21st, we discussed the requirement for capitalization in the bank before we migrate into Basel III norms. We evaluated all the possible options, including perpetual bond issuance and rights issue,” Bhaskar Sen, chairman and managing director, United Bank of India.

 Indian banks would need about Rs 5 lakh crore of additional capital to meet the Basel-III norms, the Reserve Bank of India (RBI) said in its annual report for 2011-12. According to Basel III, which will be effective from January 1, 2013, banks will have to    to maintain a minimum overall capital adequacy of 11.5 per cent (against the current 9 per cent) by March 31, 2018.

The government has estimated capital requirement of Rs 15,000 crore for banks this year while an infusion of Rs 90,000 crore has been estimated during the next five years to meet Basel-III norm.

Implementation of  the guidelines will begin January 1, 2013 and the process will be completed by March 31, 2018.