Indian Bank gets board nod to raise Rs 5,000 cr, merge with Allahabad Bank

Indian Bank to be anchor in the merger, which will create country's seventh largest lender

Indian Bank

Government-owned Indian Bank on Wednesday got a nod from its board to raise Rs 5,000-crore capital from the government through preferential allotment. The board also approved the proposed merger of Allahabad Bank with Indian Bank.

Padmaja Chunduru, managing director and chief executive officer of the bank, said it was earlier planning to raise Rs 2,000 crore, but the plan was reviewed in the light of the proposed merger. “The money will be raised after the merger. It will be used for growth plans.”

The government has suggested Rs 2,500 crore will be allotted to Indian Bank, taking into account the requirements of Allahabad Bank as the merger is expected to affect the former's balance sheet.

The merged entity will be the seventh-largest bank, according to March data, and it will be aim to become the fifth-largest in two years. The merger is expected by March 2020. 

Sources said the merger will create an entity with pan-Indian presence. Indian Bank has a strong presence in south India and Allahabad Bank is present in the north and east. It will have business of Rs 8.08 trillion, with 6,100 branches and about 43,000 employees. 

Universal Sompo's stake

Indian Bank said it might consider acquiring Allahabad Bank's stake in Universal Sompo General Insurance. Chunduru said, “We may consider acquiring the stake, which will mark our foray into general insurance.” 

Allahabad Bank said it had launched repo-linked retail and small business loans. The decision has come in line with the RBI guidelines of September 4, 2019, Allahabad Bank said in a regulatory filing. 

The bank had decided to launch retail loans and loans to micro & small enterprises linked with external benchmark rates published by Financial Benchmarks India Pvt (FBIL), it said.

"Presently, the bank has identified RBI's repo rate and three month MIBOR as the benchmark rates," it said.

Further, all the saving bank deposits of Rs 40 lakh and above, long tenure fixed deposit, bulk deposits and flexi fix deposits will be linked with external benchmark rate i.e. RBI's repo rate, it added.

The products will be available for general public with effect from October 1, 2019, Allahabad Bank said.

Stock of Allahabad Bank closed 2.31 per cent down at Rs 31.70 on the BSE.