City Union Bank to up capital

City Union Bank (CUB), a small private sector bank based at Kumbakonam in Tamil Nadu, is increasing its authorised capital manifold to make room for a follow-on public offer or a rights issue in 2007-08.

The bank has obtained approval from its board of directors to increase its authorized capital to Rs 100 crore from Rs 30 crore.

The bank's chairman, S Balasubramanian, said "CUB has been growing at around 30 per cent for the past two years and to sustain this growth, our internal accruals will be insufficient. To maintain a comfortable position and grow at the same rate, we have decided to increase the bank's authorized capital."

He, however, said the bank is yet to finalise the details of the proposed capital raising plans.

The bank's paid-up capital will increase to around Rs 28 crore from Rs 24 crore after the Reserve Bank of India (RBI) approves acquisition of a 10 per cent stake in the bank by Larsen & Tourbo (L&T).

"L&T's proposal was cleared at CUB's extraordinary general meeting held on December 29, 2006. We are expecting RBI approval for the same by the end of January or by mid-February," Balasubramanian added.

The shareholders also approved acquisition of shares by FIIs and NRIs up to 26 per cent of the equity share capital, subject to a cap of 5 per cent for each foreign entity. Foreign institutional investors' currently hold a 6.16 per cent stake in CUB.

"CUB has received licences to set up 26 more branches, which would increase the total number of branches to 180. The bank will utilise these new licences within a year. The investment in each branch would be around Rs 5 lakh," Balasubramanian said.

CUB's advances portfolio was Rs 2,655 crore as on September 30, 2006 and it had deposits of Rs 3,844 crore, up 8.12 per cent over a year earlier. CUB's net interest margin at the end of the second quarter of 2006-07 was 3.83 per cent.