Dena Bank to raise equity via pref allotment to govt

Dena Bank, in a first of its kind in the banking sector, is planning to raise equity though a preferential allotment to the government.

The bank has projected a shortfall of Rs 450 crore over a three-year period in meeting its business growth targets and complying with Basel-II norms.

Chairman and managing director M V Nair on Wednesday made a presentation to the finance minister outlining a roadmap to reduce its non-performing assets (NPA) and shore up its equity capital.

In its presentation, the bank suggested a Rs 450 crore equity issue on a preferential basis to the government. The ministry is considering this in consultation with the legal department, banking sources said.

If the government agrees to the proposal, it will have to pay market-related price to the bank for buying the shares, following the guidelines of the Securities and Exchange Board of India on pricing of preferential shares.

Since the government's stake in Dena Bank is 51.19 per cent, it cannot go for a public float as the government's stake cannot go down below 51 per cent as per the Banking Regulation Act.

Unlike a private bank, public sector banks are not permitted to float a rights issue to raise capital. In 2001, Corporation Bank increased its net worth by 51 per cent to Rs 2,060 crore by way of a preferential allotment of about Rs 459 crore to the Life Insurance Corporation of India.

The government's stake in the Mangalore-based bank was as high as 84 per cent at that time and, therefore, there was plenty of room to dilute its stake.

Dena Bank needs additional capital to grow its loan book at 25 per cent every year for three years and to provide for operational and market risks under the Basel-II norms.

Loan book growth demands capital to meet the capital adequacy norms of providing Rs 9 for every Rs 100 lent out, for an asset with a risk weight of 100 per cent.

Dena Bank is internally working on freeing and generating up tier I capital through securitisation of assets and cash recoveries from written off accounts.

Securitisation of assets is a route the bank is looking at since it would reduce the capital adequacy requirements and generate a cash flow. Recoveries from written off cases will go to the profit & loss account and in turn can be added to expand the tier I capital.

To sell South Mumbai realty

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Dena Bank has advertised the sale of four floors of prime real estate property in Cuffe Parade, South Mumbai. The sale proceeds will be added to tier-I capital of the bank.

The property will fetch as much as Rs 12,000-15,000 per square feet. The bank relocated its corporate headquarters to the new financial district of Bandra-Kurla Complex.