Mumbai, Jan 7: Bank of Baroda (BoB) may tap the capital market in March-April this year in case the Centre incorporates legislation in the union budget to reduce its stake in public sector banks below 51 per cent. "In case the government incorporates changes to the Banking Regulation Act in the budget to reduce its stake in commercial banks below 51 per cent, BoB will explore all options of raising resources through a domestic public float and GDR/ADR issues," a BoB official said. "We are also examining the issue of raising funds through a rights issue to be subscribed by all non-government and institutional equity holders," he informed.The central government has a 66 per cent equity stake in BOB.
The bank will work out the quantum of the equity float on receiving the government's nod. "The government has to address the larger issue of bringing down its equity stake in public sector banks to the level of 40 per cent as recommended by the Narasimham committee over a period of time," the BoB official said, adding,: "The bank has already submitted a proposal to the government expressing its readiness to tap both the domestic and overseas equity markets to raise resources".
The official did not rule out further capital mobilisation subsequently as and when the government takes a decision of reducing its stake in state-run banks to 40 per cent. The official hinted that BoB will waste no time in launching a public float, once the legislative approval is granted to the issue of bringing down government stake in public sector banks. In case BoB's capital mobilisation plans go as per expectations, it would be the first public sector bank to tap the capital markets to reduce government ownership. The State Bank of India (SBI) is the only bank that stated that it would launch its equity issue through a public float, GDR/ADR or rights issue in July-August this year.
BoB had since last year been deliberating on the idea of coming out with an equity issue for reducing government stake in the bank. Taking a cue from the Reserve Bank of India (RBI) governor Bimal Jalan's statement at a finance seminar in Pune on Thursday advocating a reduction in the legislative ceiling of government ownership in state-run banks, BoB officials are upbeat that they have a strong case for pushing the proposal to be incorporated in the union budget.
BoB's approach for reducing government stake is different from other banks, which wish to mobilise capital with the primary objective of meeting higher capital adequacy ratio (CAR) requirements stipulated by the central bank for the coming years.
The bank's current capital adequacy ratio (CAR) is 13.3 per cent against the present stipulated norms of 8 per cent. The RBI has directed banks to have a capital adequacy ratio of 9 per cent by March, 2000 and 10 per cent by March, 2001. Bankers say that the current year would see many banks hitting the capital market with public floats to shore up their CAR.
ON THE CARDS
The bank will fix the quantum of the equity float after getting government's nod
If the plan materialises, BoB will be the first public sector bank to tap capital markets to reduce government ownership
Centre has a 66 per cent equity stake in Bank of Baroda.Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.