Indian Bank rejigs capital base, issues pref shares

The government has restructured the capital base of Chennai-based Indian Bank so as to enable the bank to come out with a public issue early next year.

According to banking sources, of the total capital base of Rs 743 crore, the government has decided to convert around Rs 400 crore into 8 per cent coupon bearing perpetual non-cumulative preference shares.

Post-conversion, the bank will have a capital base of Rs 343 crore so as to facilitate a public issue which the bank may issue in January-February 2007, said banking sources.

The capital restructuring will be carried out on a perpetual basis and the bank will be required to pay eight per cent coupon only in the year it registers profit.

In a similar move, the government proposes to convert around Rs 600 crore capital in case of the Central Bank of India, of its existing capital base of Rs 1,175 crore into a similar perpetual non-cumulative preference share capital, said sources.

Meanwhile, it could be mentioned that the Nationalisation Act has been amended to enable public sector banks to issue preference shares and currently the Act is in the process of being notified.

Earlier, for Indian Bank, the government had netted off around Rs 3,800 crore from a capital base of Rs 4,500 crore, thus resulting in the present base of Rs 743.82 crore. The bank had brought 506 branches under core banking solution (CBS), covering over 70 per cent of overall business.

In addition to banking, the bank has introduced a variety of low-cost insurance products, covering both life and personal accident policy for its account holders.

The bank has entered into memorandum of understandings (MoUs) with PNB Principal Planners (P) Ltd for marketing mutual fund products and PNB Principal IAC (P) Ltd for marketing various insurance products of major players in the field. It has also set up bancassurance service centre to coordinate with various insurance companies for marketing life and non-life products.

Central Bank of India's net profit decreased by 28 per cent from Rs 357 crore (2005) to Rs 257 crore (2006). Capital adequacy ratio declined from 12.15 per cent (2005) to 11.03 per cent (2006) on account of increase in advances by around Rs 10,110 crore and consequent increase in risk weighted assets. However, the percentage of net NPA declined from 2.98 per cent (2005) to 2.59 per cent (2006).