IOB gets board nod for GDR floatation

Indian Overseas Bank's (IOB) governing board has granted an in-principle approval by to raise equity capital overseas through global depository receipts and list them abroad. The board has asked the bank management to submit details on the size and timing of the issue.

Last week when the bank had informed the stock exchanges about the GDR issue, S C Gupta, chairman and managing director, IOB, said that the bank will raise Singapore $ 250 million equity through global depository receipts from Singapore to meet the Basel II norms. Listing on Singapore stock exchange will give us a better visibility, he added.

When asked whether the bank was on track to raise Singapore $250 million (about Rs 650 crore) and list it in Singapore Stock Exchange, Ar Nagappan, executive director, IOB, told Business Standard that the board has given only an in principle approval, and asked the bank to work more details regarding the global depositary receipts.

He said raising GDR was in the same direction and declined to diclose the details the bank is working on.

If the bank raises GDR as expected the government's holding in IOB will be reduced to 51 per cent from 61.23 per cent. The bank had came out with its follow- up public issue in September 2003 after the intial public offer in 2000.

The bank reported a 13.5 jump in net profits to Rs 161.21 crore in third quarter December 31, 2004 compared to Rs 142.01 crore for the same period the previous year.

The bank's operating profits fell by 2.85 per cent to Rs 327.09 crore for the third quarter in 2004-05 from Rs 336.69 crore for the same period the previous year.

IOB's earned interest increased by 5.80 per cent to Rs 1006.76 crore for the third quarter in 2004-05 compared Rs 951.49 crore for the corresponding period last year.

Other income reduced by 23.3 per cent to Rs 140.36 crore in third quarter in 2004-05 compared to Rs 183.04 crore for the same period last year. The banks net NPA's declined from 2.85 per cent for the year ending March 31, 2003 to 1.57 per cent December 31, 2004.

Banks will have to provide capital based on credit risk, market risk and operational risk for Basel II norms. In order to meet the Basel II norms, public sectors banks have started tapping the primary issue market.

For example, Punjab National Bank, Oriental Bank of Commerce, Dena Bank and Bank of Baroda have either raised additional equity capital, or are in the process of doing so.

Banks in India will have to comply with stringent Basel II prudential norms prescribed by the Bank for International Settlements by December 2006.