Vijaya Bank revalues real estate assets

Bangalore-based Vijaya Bank has revalued its 64 real estate properties across the country, after a gap of 12 years, to shore up its capital adequacy.

This would add Rs 442.59 crore to the bank's revalutaion reserves, of which around Rs 200 crore will qualify for tier II capital. According to the Reserve Bank of India (RBI) guidelines, 45 per cent of the revaluation reserves are taken into account for inclusion in Tier II capital.

Another public sector bank, Bank of India, last week decided to revalue its 50 prominent real estate properties, which is expected to add over Rs 800 crore to the bank's revaluation reserves.

The revaluation proposal was placed before Vijaya Bank's board in July. The revaluation exercise was undertaken by two independent valuers. It took into account the appreciation in the value of fixed assets till quarter-ended June 2007. The book value of the properties was Rs 89.73 crore.

The bank's capital adequacy ratio (CAR) in the current quarter rose to 11.70 per cent from 11.21 per cent at the end of June 2007, after the bank raised Rs 200 crore through issue of tier II bonds. With the implementation of Basel II capital norms, the bank's CAR would fall by 40 basis points. One basis point is one-hundredth of a percentage point.

"We may raise another Rs 300 crore this year through an upper tier II bond issue," said Prakash Mallya, chairman and managing director, Vijaya Bank.

The government holding in the bank stands at 53.87 per cent, close to the statutory requirement of 51 per cent.

"We, however, have headroom to raise Rs 1,600 crore of capital through the issue of upper tier II, lower tier II and perpetual bonds. Also capital will grow by way of accrued profits. This should take care of our capital requirements till 2009 where we are targeting a business mix of Rs 1 lakh crore," said Mallya.

The bank's business currently stands at Rs 66,000 crore, with advances at Rs 26,000 crore and deposits at Rs 40,000 crore.

The bank's net interest margin stood at 3.11 per cent at the end of July 2007, down from 3.25 per cent a year earlier.

"The pressure on the net interest margin (NIM) is there. But anything above 3 per cent is comfortable," said Mallya.