PSU banks set for cash trip

Our Special Correspondent

Mumbai, Dec. 21: State-owned banks are getting ready for a capital raising spree just days after the Centre announced that it was ready to make a funds infusion of Rs 12,000 crore in PSU banks.

The Union Bank of India today said it was tossing a number of options to raise capital.

In a communication to the stock exchanges today, the lender said its board would meet on December 27 to consider a proposal to raise equity capital of the bank. The bank said this would be through a preferential allotment, rights issue or qualified institutional placement subject to necessary approvals.

The bank's fund-raising plan also comes just days after both Houses of Parliament passed the banking laws (amendment) bill. The new legislation will raise the cap on voting rights of minority shareholders from 1 per cent to 10 per cent.

Minority shareholders cannot vote the full complement of their shareholding if it exceeds 1 per cent of the equity capital. The new legislation will have to be notified in the gazette before the new voting rights limit comes into effect.

The new legislation has also enhanced the options available with lenders to raise capital from the markets.

Recently, the Centre gave the green signal for a fund infusion of Rs 12,000 crore in nationalised banks to enhance their capital base. The government has made a provision of Rs 15,000 crore in the budget for recapitalisation.

In 2010-11, the Centre had pumped in Rs 20,157 crore in PSU banks to maintain tier-I capital at 8 per cent and increase the government equity in some banks to 58 per cent. In the following year, the nationalised banks got Rs 12,000 crore to improve their capital adequacy ratios.

The latest round of fund infusion comes ahead of the phased implementation of Basel III guidelines beginning January 2013. According to the RBI's estimates, banks will need an additional capital of Rs 5 trillion by 2018 to comply with the Basel III norms.

Although the list of the lenders who will receive fund infusion is not yet available, it is believed to include Indian Overseas Bank, Central Bank of India, Bank of Maharashtra and the State Bank of India.

D. Sarkar, chairman and managing director of the Union Bank of India, has said in the past that the bank is expecting a fund infusion of about Rs 1,000 crore. The bank has a tier-I capital adequacy ratio of just over 8 per cent.

Meanwhile, the finance ministry said state-owned banks could increase capital while issuing preference shares, rights issues or bonus shares without being limited by the earlier ceiling of Rs 3,000 crore.