The Hindu Business Line : Indian Bank to defer IPO

"The present capital structure does not permit the bank to go to the market," the bank's new Chairman and Managing Director, Dr K.C. Chakrabarti, told Business Line on Saturday.

Only last month did Dr Chakrabarti's predecessor, Mr M.B.N. Rao, say that the bank would come out with an IPO perhaps in September, but "definitely this year".

Dr Chakrabarti observed that the bank's capital adequacy ratio was at a comfortable 14.6 per cent. Even after the Basel-II norms came into force, the bank's capital adequacy would be around 12 per cent (against the regulatory requirement of 9 per cent), he said.

"Only when the capital structure is restructured, would we think of an IPO," he said.

Indian Bank turned in a net profit of Rs 408 crore for last year, which did not help diminish the bank's accumulated losses of Rs 3,830 crore.

After appropriating the profit to the Statutory Reserve, Capital Reserve and Investment Fluctuation Reserve, there was nothing left to set off against accumulated losses.

On the other hand, the bank has a capital of Rs 4,594 crore. As much as Rs 3,820 crore of the capital came from recapitalisation bonds issued by the Government. The bank earns around Rs 300 crore as interest on the recap bonds — a sort of a subsidy from the Government — which accounts for the bulk of the profit earned.

A `restructure of the capital' would mean setting off accumulated losses against the capital. The bank then would be in a position to present investors a balance sheet untainted by held-over losses and a thin capital base.

Incidentally, the other Chennai-based bank, Indian Overseas Bank, which too has a new Chairman and Managing Director (Mr T.S. Narayanasami) has also announced a rethink on the move conceived by the previous CMD. The bank has given up the idea of going in for a GDR issue of $ 70 million.

The bank had first thought of a GDR for $ 150 million (Rs 650 crore), but later scaled down the amount. Banking industry sources say that $ 70 million is too small an amount for a GDR issue.

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