The loss-making Dena Bank is looking at the possibility of roping in a strategic partner to shore up its capital adequacy ratio (CAR) to the Reserve Bank of India-stipulated 9 per cent level from the present 7.73 per cent.
The bank has sent the proposal to the government, which owns 70.99 per cent in the bank, as part of its revival package. If the proposal is accepted, Dena Bank will be the first public sector bank to privately place equity with a strategic partner.
Dena Bank chairman A G Joshi said the bank has submitted the proposal to the Union finance ministry as a part of the revival package. However, it is not scouting for any partner at this moment as it has not yet heard from the ministry.
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According to sources, Dena Bank is examining the possibility of coming out with a rights issue, a part of which the government could renounce in favour of a potential strategic investor. This move will pave the path for fresh infusion of capital as the government is in no position to pump in money in public sector banks.
The possibility of selling real estate to plough back money into the capital is also bleak as the bank had sometime back revalued its real estate assets and it will not be in a position to book capital gains in this depressed market, sources said.
The tier-II capital of the bank at Rs 447.11 crore exceeds 50 per cent of its tier-I capital of Rs 780.82 crore and this precludes it from raising funds to undertake fresh business via a subordinated debt issue. As per norms, banks are not allowed to raise the tier-II capital beyond 50 per cent of the tier-I capital.
The move of placing equity with a partner by the bank comes close on the heels of the Life Insurance Corporation of India recently picking up strategic stakes in Mangalore-based Corporation Bank and Delhi-based Oriental Bank of Commerce.
Dena bank is not in a position to expand its asset base as it is constrained by its low CAR. The Mumbai-headquartered bank, which reported a Rs 266 crore loss in fiscal 2000-01, has already submitted a three-pronged three-year recovery plan to the union finance ministry. The plan entails expeditious recovery of non-performing assets, which was at Rs 1,946 crore as on March 31, 2001, bringing down the cost of deposits through aggressive mobilisation of the savings and current deposits and pruning expenditure.
In the short-run Dena Bank expects to pare its net loss to below Rs 100 crore in fiscal 2001-02 and post an operating profit of around Rs 200 crore as against only Rs 68 crore logged in the previous fiscal.