Nainital Bank plans float to meet CAR

Nainital Bank is planning its initial public offering (IPO) in 2006-07 to raise its networth to Rs 300 crore from Rs 105 crore to meet the Reserve Bank of India's higher capital adequacy requirement.

"Post-issue, Bank of Baroda's stake in the bank would reduce to 51 per cent from 98.6 per cent. The additional capital would be required to keep pace with the growth in advances and investments," V Varma, chairman and CEO of Nainital Bank, said after a function to announce a bancassurance deal with ING Vysya Life Insurance.

"Eighty per cent of the funds raised from the IPO would be used for advances and the remaining for investment," Varma, said.

The bank is planning to grow its advances to Rs 500 crore in 2005-06 from Rs 385 crore in the last financial year. Nainital Bank has a networth of Rs 105 crore and as per the RBI's guidelines it is required to hike it to Rs 300 crore by 2008.

The bank is planning to set up a branch in Mumbai in the current financial year, subject to approval from the Reserve Bank and the Securities & Exchange Board of India. It also has plans to set up a branch each in Ludhiana and Ahmedabad, but no time frame has been planned for the same.

Nainital Bank will initially use 19 of its network of 72 branches spread over Delhi, Haryana, Uttaranchal, Uttar Pradesh and Rajasthan to sell products of ING Vysya Life Insurance as per of the bancassurance deal signed today.

"We expect to the deal to contribute about Rs 25 lakh to our income in this financial year," Varma, said. Nainital Bank has a tie-up with National Insurance Company to sell its General Insurance Products.

The bank is aiming to increase contribution of its fee-based income to 18 per cent this fiscal against 14 per cent during last financial year.