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Mumbai, Sept. 17

To ensure that its organic and inorganic growth plans are not hamstrung by the limitations of raising core capital that urban cooperative banks face, the Mumbai-headquartered Saraswat Co-operative Bank has moved the Central Government and the Reserve Bank of India for permission to issue shares at a premium to new members.

Currently, co-operative banks can strengthen their core (Tier-I) capital by issuing shares at face value, ranging from Rs 10 to Rs 100, and through plough-back of profits. The capital market is off-limits for them.

Now, the largest multi-state urban co-operative bank (UCB), which has 203 branches spread across Maharashtra, Karnataka, Goa, Gujarat, Madhya Pradesh and Delhi, the bank wants to be able to issue shares at a premium instead of just at face value to substantially augment its capital base.

To be able to double its business to Rs 50,000 crore by March 2016 and also acquire co-operative banks (the bank has zeroed in on five acquisition targets), Saraswat Bank needs growth capital, which is currently a constraining factor, according to Mr Eknath K Thakur, Chairman of the bank.

"Though our book value far exceeds the face value, we cannot raise capital funds through the capital market through initial public offers. We also cannot charge a premium based on book value to new members subscribing to our share capital. Our bank, like most of the UCBs, has become capital starved. We have brought this to the notice of the Central Government as well as the RBI," he said.

To issue shares at a premium, Mr Thakur said, some regulations and laws will need to be urgently amended so that UCBs' growth is not hampered due to capital constraints.

On acquisitions, Mr Thakur said though RBI recently cancelled the licence of Vadodara-based Anyonya Co-operative Bank, Saraswat Bank was still interested in acquiring it as the former sowed the seeds for the co-operative movement in India way back in 1889. He pointed out that while shareholders of India's oldest co-operative bank and the Gujarat Government were for the amalgamation, the employees were opposed to it. Another bank which is on its acquisition radar is the Ichalkaranji UCB.

Between 2006 and 2009, Saraswat Cooperative Bank acquired seven UCBs. These banks had cumulative business of Rs 1,895 crore.

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(This article was published in the Business Line print edition dated September 18, 2010)
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