Bank of Punjab board meet in Jan over raising capital

Bank of Punjab board is expected to meet in mid-January to evaluate various options for raising capital.

C R Sharma, managing director, Bank of Punjab, said, "the bank board will be meeting soon to decide on the quantum and the means through which it could raise capital."

The board will evaluate all options and take a final decision then, he added. Sources close to the development said that the bank is expected to come out with a preferential issue of around Rs 150 crore.

The promoters are also evaluating the proposal of divesting their stake in the bank to a foreign bank and a foreign institutional investor, said banking sources.

Indian promoters hold 31.70 per cent stake in the bank. The stake sale will enable the bank adhere to the Reserve Bank of India (RBI) guideline to reduce promoter's holding in banks to 10 per cent.

The promoters attempt to divest its stake gains importance as a host of foreign banks are looking to either enter the Indian market or expand their operation in the country, said sources.

The RBI guidelines released in July 2004 stated that no single entity should hold more than 10 per cent in a private sector bank. Darshanjit Singh, former director and promoter of Bank of Punjab, when contacted refused to comment.

At present, the bank is adequately capitalised, said Sharma. Its capital adequacy ratio currently stands at 11.80 per cent, however, to support the banks future growth and for adhering to the fresh RBI guideline, the bank will have to raise capital in the near future, he added.

The RBI in its draft guideline on private ownership in private sector banks had also stated that banks would have to boost their paid-up capital to Rs 300 crore over a period of three years. The bank's paid-up capital and reserves and surplus as on March 31, 2004, stood at around Rs 105 crore and Rs 138 crore, respectively.

The bank will raise its paid-up capital over a period of time partly through ploughing back profits and through fresh infusion of capital, said Sharma.

At the Bombay Stock Exchange today, the Bank of Punjab stock ended at Rs 32.45, up 3.18 per cent against its previous close of Rs 31.45.