Indian Bank plans to raise Rs 300 crore Tier II capital

Chennai-based Indian Bank yesterday announced that it was raising Rs 300 crore in Tier II capital through private placement of unsecured redeemable non-convertible subordinated bonds.

The issue includes a greenshoe option of Rs 100 crore and opens on June 23 and closes on July 7.

Banks' Tier-I capital consists of equity capital and free reserves, while Tier-II capital consists of undisclosed reserves, a part of revaluation reserves, and subordinated debt.

Tier II cannot be more than 50 per cent of Tier I capital The move is expected to improve the bank's capital adequacy ratio (CAR), which for the financial year ended March 31, 2004, was 12 per cent.

Currently, banks have to maintain a CAR of 9 per cent. Meaning, to build a Rs 100 asset book, the bank needs to have a capital of Rs 9.

Announcing the fund-raising plan at a press conference, M B N Rao, chairman and managing director of the Indian Bank, said, "The bank expects to raise Rs 300 crore including the green shoe option of Rs 100 crore through the Tier II bonds."

The funds raised through the bond apart from improving the CAR would further enhance the long term resources of the bank. The face value of the bond is Rs 10 lakh and the minimum application size is one bond.

Rao said the bond had two tenor options: seven years at 6.15 per cent and ten years at 6.25 per cent. The bank, which has 1,376 branches, has achieved 90 per cent computerisation of branches.

"We expect full computerisation of branches during this financial year," Rao said.

The bank has also selected a core banking solution but Rao did not name the provider.

He said that the bank was planning to install around 150 ATMs to its current base of 104 ATMs.

"We are also going in for internet and telephone banking facilities and plan to have these facilities installed at least 50 branches in the country by March 2005," Rao said.

The Indian Bank's gross business for the year ended March 31, 2004, was Rs 45,379 crore.

The figure is expected to top Rs 55,000 crore this financial year.

Its net profit rose 114.88 per cent to Rs 405.75 crore last fiscal against Rs 188.83 crore in the year preceding the last.

Farm sector disbursements stood at Rs 1,379.21 crore. Rao said this would be increased by 31 per cent to Rs 1,724 crore during 2004-05.

Rao said the Indian Bank  has maintained a high recovery rate and hopes to continue the same during the current year too.

The recovery rate from the self-help groups was 98-100 per cent and in the agriculture sector was 83 per cent.

The bank during the financial year 2003-04 financed 18,203 self help groups with a total outlay of Rs 301 crore.