The Hindu Business Line : Three banks plan public issue

THREE public sector banks - Bank of Baroda, Union Bank of India, and Andhra Bank - are slated to hit the market with another round of public issues shortly.

While Bank of Baroda and Andhra Bank have scheduled their issues for this month, Union Bank is likely to issue in February.

According to Ms Sohini Andani, an equity analyst with ASK-Raymond James, these issues would be well received as the valuations are not very expensive.

As the CAR in these banks is adequate, they would not be affected even if the Government's stake in them reaches close to the limit of 51 per cent post-issue, she added.

"Banks cannot lend entirely out of their deposits. They need additional capital in order to maintain the CAR."

The Government holding in Bank of Baroda would come down to 53 per cent after the public issue. The bank's CAR, which is at 12.75 per cent, could increase to 13 per cent, assuming that the current growth in credit of 25 per cent is maintained, said Dr A.K. Khandelwal, Chairman and Managing Director.

Union Bank of India had a credit growth of 33 per cent as on September against a projection of 21 per cent for the fiscal. The bank is awaiting the approval of the Securities and Exchange Board of India to sell 4.5 crore equity shares to raise Rs 450-Rs 500 crore, said Mr Cherian Varghese, Chairman and Managing Director.

Post-issue, the Government holding in the bank would come down from the current level of 60.85 per cent to 55.43 per cent.

Mr Varghese said, "We are not worried about coming close to the 51 per cent limit because we hope the RBI would come out with a decision on hybrid capital by then." The bank would like to maintain its CAR at 12 per cent, he added.

Andhra Bank is also likely to see credit growth to be 20-25 per cent in this fiscal due to the focus on agriculture and small and medium enterprises, according to Mr K. Ramakrishnan, Chairman and Managing Director.

The bank is planning an equity stake of 8.5 crore shares, which will bring down the Government stake to close to 51 per cent from 62.5 per cent.

"This issue will take care of our capital requirements till 2007. When we go into expansion drive, we will have to provide for the capital risk. Going to the market will also create more elbow room for Tier-II," Mr Ramakrishnan said.

The bank's CAR was 11.95 per cent as on September 30, 2005; ideally it would be over 12 per cent, said a bank official.

On Wednesday, the scrips of all three banks were up from their previous close.

Union Bank closed at Rs 127.05, up 5.5 per cent from Rs 121.55. Andhra Bank closed at Rs 95.3, up 1.55 per cent from Rs 93.75, while Bank of Baroda closed at Rs 257.35, up 11.85 per cent Rs 245.5 on the BSE.

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