3 PSU banks mull rights issue

Union Bank of India, Dena Bank, Oriental Bank of Commerce, the state-run lenders with the government stake below 55 per cent, will be considering rights issues to raise capital for meeting the Basel-II norms and support business growth.

The government has given clearance for State Bank of India's (SBI) proposed Rs 17,000 crore rights issue by agreeing to invest Rs 10,000 crore to maintain its stake at the current level of 59.73 per cent.

It has also assured the Parliament that the government holding will not drop below 51 per cent in public sector banks. The clearance to SBI's rights issue has opened an option for nationalised banks with the government stake below 55 per cent to approach the government for fresh capital infusion.

Dena Bank Chairman Gairola said, "The bank has various options to raise capital including the rights issue of shares. We have to look at the cost of capital."

"Our share is quoting at a substantial premium to face value. In comparison to using bond offering to raise capital, where we have to pay annual interest, the cost of capital is low for issuing equity shares on rights basis," he said.

"The bank will look at the approach of the government for rights issue plans. However, no specific plan has been finalised. Besides the government, other shareholders will also invest at a premium," Gairola said.

The government holding in Dena Bank is 51.59 per cent and its capital adequacy ratio was 11.47 per cent at the end of September 2007.

The core capital, tier-I, was was 6.72 per cent, just above the minimum required 6 per cent that the bank will have to maintain under the Reserve Bank of India (RBI) norms.

Union Bank, which raised Rs 600 crore through tier-I and tier-II today,will also consider the rights issue route. It will take a call in the first quarter of 2008-09 (April-June 2008) after assessing capital requirement for the next 3 to 4 years, said a senior official with the bank.

Union Bank's capital adequacy was 11.56 per cent at the end of September 2007, with the tier-I capital at 7.36 per cent.

NEW AVENUE

The government has given clearance to State Bank of India's proposed Rs 17,000 cr rights issue

The Centre has agreed to invest Rs 10,000 cr to maintain its stake at 59.73 per cent

The Parliament has been assured that the government holding will not drop below 51 per cent in public sector banks