UTI-I team to study Bank stake dilution

The specified undertaking of the Unit Trust of India (UTI-I), the principal promoter of UTI Bank, has formed a special team to assess the pros and cons of a dilution of its stake in the bank.

"A decision on this front would be taken only after the study team has submitted its report," said S B Mathur, administrator of UTI-I.

UTI-I had held a board meeting on December 31 to approve the bank's proposed issue of American depositary shares (ADS). The meeting instead decided to set up the study team.

UTI Bank was considering an ADS that would lead to 20 per cent stake dilution of stake of UTI-I and the Life Insurance Corporation (LIC), the two promoters of the bank.

At present, UTI-I holds around 33 per cent which would decline to 22 per cent post ADS. LIC will see its holding decline to 11 per cent from 13.5 per cent.

The promoters' stake in the bank, therefore, was slated to decline from 46.5 per cent to 33 per cent post ADS.

LIC was also not too keen on a stake dilution at UTI-Bank said sources close to the development. "In an event of both the promoters not allowing a stake dilution, UTI-Bank would however find it difficult to maintain the pace of growth and might have to look for a different route for raising Tier-I Capital," explained analysts.

"Possible solutions could be preferential issue or a rights issue," he added.

The bank's management was planning to raise $ 200 million through the issue to shore up its capital base which would put in a comfortable position with regards to capital adequacy ratio for the next three years.

In the absence of fresh capital UTI Bank will its CAR decline to a little over 9 per cent by March 2005. Basel-II requirements would also lead to further requirement of capital at the bank.

HSBC which had acquired 14.6 per cent in the bank as strategic acquisition will also see its stake decline to 11.5 per cent after the issue.

Other shareholders like GIC hold close to seven per cent in the bank, while Barclays hold another four per cent. Small Capital World Fund hold another four per cent in the bank.