Ministry may okay PSB pref share rate waiver

The finance ministry is likely to accept Punjab & Sind Bank's (PSB) request seeking an interest waiver for a few years on preference shares it proposes to issue to the Centre as part of a capital restructuring.

The state-run bank has submitted a proposal to the ministry for conversion of Rs 500 crore of the Rs 743 crore equity capital into perpetual preference shares.

The bank is on a recovery path since 2005-06 after turbulent years earlier. Its net non-performing assets (NPAs) dropped to 0.66 per cent at the end of March 2007 from about 11 per cent in March 2003.

PSB was earlier exempted from paying dividend to the government for three years ending March 2008. UCO Bank too has proposed to convert a part of the government holding into preference shares, but the Kolkata-based bank has thus far not made it clear how it would ensure that the government's stake does not fall close to the minimum required 51 per cent.

The Mumbai-based Central Bank of India, which recently got listed, converted Rs 800 crore of its pre-Initial public offering (IPO) equity of Rs 1,124 crore and is paying interest of one percentage point above the yield on 10-year government bond on the preference shares.

PSB's equity capital restructuring plans are meant to ensure they get a better valuation when it goes for an initial public offering (IPO).

"The ministry is considering the request to exempt PSB from paying interest for some years," said a government official, who did not want to be identified. If exempted from paying interest, the PSB would save around Rs 40 crore every year.

Meanwhile, the bank has decided to defer its IPO to 2008-09 for better pricing, as it expects its 2007-08 results to be very good.

"We want another good performance before the IPO. The return on assets of PSB will be one of the best in the industry in 2007-08," said R P Singh, chairman and managing director.

The return on asset of P&SB was 1.01 per cent in 2006-07 against nationalised banks' average of 0.94 per cent and all commercial banks' average of 1.05.

The bank expects 70 per cent growth in net profit in 2007-08. The bank's net profit in 2006-07 was Rs 218 crore and Rs 108 crore in 2005-06.

It had reported a loss of Rs 71 crore in 2004-05. Its net profit was up 79 per cent year-on-year at Rs 80 crore in the quarter ended June 30.

"We expect cash recovery of Rs 300 crore from non performing assets this fiscal, which will substantially improve our profits," Singh added.

The bank expects deposits and advances to grow 20 per cent each in 2007-08. Deposits and advances of the bank stood at Rs 19,318 crore and 11,948 crore respectively as on March 31, 2007.