The Hindu Business Line : PNB drops plan for bond issue before March

CAPITAL MARKET SERVICES BRANCH: Mr S. C. Gupta, CMD, Punjab National Bank, at the inauguration of the capital market service branch, in the Capital on Wednesday. - Ramesh Sharma

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New Delhi Feb. 14 In a change of tack, Punjab National Bank (PNB), the country's third largest bank by assets, has decided to drop its earlier plan to raise additional Tier-II capital by March this year.

This decision is the fallout of the Reserve Bank of India's (RBI) move on Tuesday to raise the cash reserve ratio (CRR) by 50 basis points in two stages and the consequential adverse movement in the bond markets on Wednesday.

"Raising capital now has become a costly affair for us. Yield on ten-year paper has gone up to around 8.13 per cent. In this environment, it would not be prudent to raise capital, whether Tier-I or Tier-II," Mr S.C. Gupta, PNB Chairman and Managing Director, told reporters here.

Overseas expansion

Stating that PNB was quite comfortable with the existing capital adequacy of 12.9 per cent, Mr Gupta also said that its overseas expansion, for which fresh capital was to be raised, was likely to be implemented only after March this year.

The PNB Chairman had on January 31 said that the bank would raise at least Rs 500 crore of Tier-II capital before the end of current fiscal to fund its overseas expansion and business growth. PNB has already raised Rs 2,000 crore of Tier-II capital this fiscal.

Yield on ten-year government paper touched a level of 8.13 per cent on Wednesday, raising concerns among the PNB management on the impact this development would have on its government securities portfolio.

"If the same trend were to continue in the bond market during the remaining days of the current fiscal, our profitability will be hit,'' Mr Gupta said after inaugurating a first-ever capital market services branch of the bank here on Wednesday.

He, however, expressed confidence that the bank would be able to meet the various targets, including that of profitability, spelt out in the statement of intent filed with the Finance Ministry.

PNB's Executive Director, Mr K. Raghuraman, said that there was "no compelling reason" for the bank to raise capital now, especially when cost of funds are going up.

He said that there was no point in committing for the long term at a time when it is not affordable. Mr Raghuraman highlighted that the short-term papers were getting hit more than the longer-term papers.

More Stories on : Public Sector Banks | Punjab National Bank

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