RBI guidelines hit CSB capital raising plans

Thrissur-based Catholic Syrian Bank's (CSB) capital raising plans appear to have hit a roadblock. The Reserve Bank of India (RBI) is not willing to clear the bank's proposal to make preferential allotment of about 15 per cent stake in the bank to Asian private equity firm, AIF Capital Development.

The Foreign Investment Promotion Board (FIPB) has cleared the proposal but the RBI guidelines restrict any single private equity firm's holding in a private sector bank to 5 per cent.

"We cannot permit a private equity fund to take a significant stake in a bank. The regulatory guidelines clearly state that private equity funds can acquire up to 5 per cent stake in a bank,'' said a senior RBI official. 

STRONG NUMBERS
Rs crore	Net worth	Deposits	CAR (%)
2001-02	102	3,191	9.57
2002-03	137	3,506	10.58
2003-04	191	3,880	11.23
2004-05	210	4,021	11.35
2005-06	216	4,289	11.26
Source: Catholic Syrian Bank

AIF Capital has 5.56 per cent stake in the new generation private sector bank "�Yes Bank. In addition to Yes Bank, AIF Capital's portfolio in India includes Bharti Tele-Ventures and GVK Industries.

"We have not received any formal reply from the RBI. The proposal awaits RBI clearance.The answer is expected to be positive,'' said P C Varghese, chief general manager, CSB. Varghese has taken charge of the bank after N R Achan resigned as the chairman of the bank.

Although, Achan maintains that he resigned due to health reasons, banking circles are abuzz with rumours that he had quit due to some differences with the board of directors.

The bank with a capital adequacy of 11.24 per cent at the end of March 31, 2006 has been struggling to raise capital. The bank is also grappling with the central bank's refusal to transfer shares of the bank acquired by Singapore-based Chawla group, which had purchased about 36 per cent stake in 1997 for Rs 85 per share.

The purchase of shares by the Chawla group was approved by the bank's board and it also received clearance from the the FIPB and the Cabinet Committee on Foreign Investment (CCFI) in early 1997. However, the RBI rejected the group's request for transferring the bank's shares in its name.

This issue has not yet been fully solved. The only occasion the bank raised capital was in 1999. It had raised around Rs 26 crore through a rights offer, with Chawla not subscribing to his entitlement.

It is imperative for CSB to raise capital to adhere to the RBI's norms on minimum capital requirements for private sector banks, which require all private sector banks to increase their networth to a minimum of Rs 300 crore. CSB's networth in at the end of 2005-06 was around Rs 215 crore.