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George Cherian
MUMBAI, SEPT 29: Bank of Punjab (BoP) has dropped its rights issue plan for the current fiscal. Instead, the bank has decided to raise funds through the floatation of a subordinated debt issue to augment its capital adequacy ratio (CAR).
BoP officials said the plan has been dropped since the management does not want to expand the share capital. "This would make servicing of the expanded equity base difficult," said a senior BoP official.
BoP's CAR stood at 16.34 per cent as on March 31, 1998, well above the Reserve Bank of India-stipulated 8 per cent. However, the bank has said it will have to raise the level for its tier-II capital during the next fiscal to meet minimum CAR requirements as it expects its risk-weighted assets to grow by 100 per cent to Rs 1,100 crore during the current fiscal.
Advances as on March 31, 1998, stood at Rs 518.78 crore. Advances during the first half of the year have already grown by Rs 320 crore.
The Reserve Bank, in its monetary policy for the first half of 1998-99, hadannounced that banks would have to achieve a minimum CAR of 9 per cent by March, 1999, and 10 per cent by March, 2000.
The BoP scrip has been quoting marginally above par for a long time now. The scrip opened at Rs 13.50 on September 25 and touched an intra-day high of Rs 13.80. Analysts say the market has discounted BoP on account of its large exposure to small traders, where the chances of default are very high. "Going in for a rights issue would mean that the premium BoP could charge would be very low, given the price that the share is quoting at," said an analyst.
HDFC Bank, in January, raised its capital adequacy position by raising Rs 100 crore under tier-II capital. The bank raised six-year six-month money at 13 per cent on a private-placement basis. The bank's CAR as on March 31, 1998 stood at 13.92 per cent against 13.50 per cent in the previous year. Total advances of HDFC Bank increased by 46 per cent in 1997-98.
Global Trust Bank also raised funds under tier-II capital by making apreferential placement of $10 million to International Finance Corporation earlier this year.
INSIGHT
Non-performing assets to rise
Bank of Punjab has signalled a steep rise in its non-performing assets by its desperate attempt to shore up its capital further. That the rights issue would be a flop was a foregone conclusion as the fundamentals are not what they are made out to be. Most of its profits are on account of sale of investments. For 1997-98, the return on assets works out to 2.5 per cent, but if the excessive effect of profit on sale of investments is removed, the return on assets works out to barely over 1 per cent. In addition, except for a brief period when there was a desperate attempt to shore up the stock between April and June 1998, the price has fluctuated between Rs 13 and Rs 15.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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