Karnataka Bank Ltd, a publicly-held private sector bank, has decided to drop plans to raise equity through a rights issue. In the stead, the bank will augment the capital by issue of tier-2 bonds.
The bank, headquartered in Mangalore in Karnataka, has a capital adequacy ratio of 12.50 per cent (under Basel-II standards) against a minimum requirement of nine per cent. While the capital adequacy under tier-1 capital is at 10.99 per cent, it is at 2.06 per cent under tier-2 capital, a comfortable situation for the bank. It is to boost this capital that the bank may be eyeing to raise around Rs 250 crore through the issue of fresh bonds. The bank had earlier during 2007 raised Rs 350 crore by issuing 10-year bonds for augmenting tier 2 capital.
The advances by the end of the first quarter of FY13 increased by Rs 3,591 crore from Rs 18,087 crore to Rs 21,678 crore, registering a year-on-year growth of 20 per cent. The bank is expecting to touch the Rs 26,000-crore mark by the end of FY13 and so, the need to boost tier-2 capital.
Net profit during the first quarter of FY13 grew 67 per cent to Rs 83.44 crore. Current account and savings account (CASA) increased by 17 per cent to Rs 7,694 crore.
The bank has been in the eye of major banks that are looking to grow their business, but time and again the management of Karnataka Bank has denied the bank is for sale.
It is not without a reason that many a large financial institution has been eyeing Karnataka Bank. There has been robust growth in advances during the quarter as depicted by incremental credit-deposit ratio of 102 per cent. The bank earned a total income of Rs 989 crore, registering a growth of 29 per cent. The operating profit has increased Rs 58 per cent to Rs 169 crore. The net interest income has increased 47 per cent to Rs 226 crore, while the net interest margin rose from 1.93 per cent to 2.45 per cent.
The Karnataka Bank stock gained 5.67 per cent on Monday on BSE to close at Rs 86.65, while the benchmark Sensex gained 0.42 per cent to end trade at 18,542.31 points.
