A bloated capital base at Rs 1,124 crore and an earnings per share (EPS) at Rs 1.36 are unlikely to allow Central Bank of India to tap the capital market with an initial public offer (IPO) at a premium.
The bank, which wrote-off accumulated losses amounting to Rs 681.68 crore in 2001-02, may need to go in for further capital restructuring if its IPO has to command a reasonable premium.
In the last financial year, the bank had made a beginning at capital restructuring by taking advantage of a Section in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (amended in 1994) whereby the paid up capital of a bank may be cancelled to the extent of capital lost or unrepresented by available assets by the central government in consultation with the RBI.
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"Central Bank's present capital structure and existing EPS are limiting factors in accessing the capital market at a reasonable premium and it may have to issue equity shares at par," said senior bankers in the know of developments.
Peer public sector banks like Bank of Baroda (BoB) and Bank of India (BoI) had restructured their capital to reduce their pre-issue equity, therefore, increase their pre-issue EPS to enable them to enter the market at a premium.
Prior to its IPO, BoB shrunk its capital from Rs 740.93 crore to Rs 196 crore by returning Rs 381 crore to the central government and transferring Rs 163.93 crore to the capital reserve.
Similarly, Bank of India, in the run-up to its IPO, wrote-off accumulated losses of Rs 1,370 crore and returned Rs 93 crore to the Centre thereby bringing down its capital from Rs 1,952 crore to Rs 489 crore.
Central Bank's chairman and managing director Dalbir Singh had, at a press conference held earlier this month to announce its financial performance, stated that the bank was planning a Rs 300 crore IPO in the current financial year.
However, the Board had originally approved a proposal to raise Rs 500 crore by issuing 50 crore equity shares at a face value of Rs 10 each for cash at par.
Post-IPO, the Centre's holding in the bank will come down to 69.2 per cent from 100 per cent.