Centre may clear Central Bank capital revamp

Central Bank of India, one among the four unlisted public sector banks, is likely to get the Centre's nod to restructure its capital. Following the approval, the bank will be able to tap the capital markets.

The bank wants to convert Rs 670 crore of its capital into preference shares and place it with the government. This will reduce its capital from the current Rs 1,124 crore to about Rs 454 crore.

"The finance ministry is looking at the proposal with fresh interest, particularly after the finance minister's announcement in the Budget. The government has also taken a clear stand that all profitable PSUs should be allowed to be listed," said sources close to the development.

The finance minister in the Budget said that banks would be allowed to issue preference shares, which was till now a grey area.

Central Bank of India is planning a Rs 150 crore (at face value) initial public offering following which the government's stake in the bank will be around 75 per cent.

Reducing the capital base will help the bank claim a fatter premium in the equity markets and make it on a comparable level with other banks of similar size, sources said. A smaller capital will help perk up the bank's earnings per share.

The bank, which has 2.3 crore customers, has a capital adequacy ratio of 13.24 per cent. But it will need to raise capital to comply with the stringent Basel II norms, which be applicable from March 2007.

Central Bank of India and United Bank of India are the only two public sector banks which have not been allowed to return their excess capital to the government.

Most other public banks returned their excess capital ahead of their initial public offerings. Banks ended up with excess capital after the recapitalisation bonds the government injected into them whenever they were in need of capital.