New Delhi, Aug. 8 Punjab & Sind Bank (PSB) may soon be able to tap the capital market through an initial public offering (IPO) at a reasonable premium, with the Union Cabinet on Friday giving its nod for restructuring its equity capital.
The additional capital, after the equity rejig, would help the bank expand its business in compliance with Basel-II requirements and also improve its financial position.
PSB is entirely owned by the Union Government.
The restructuring would involve conversion of Rs 160 crore into Innovative Perpetual Debt Instrument (under Tier-I), and Rs 200 crore into Perpetual Non-Cumulative Preference Shares (under Tier-II capital), the Science and Technology Minister, Mr Kapil Sibal, told reporters after a Cabinet meeting here on Friday.
After this restructuring, the equity capital of the bank would be Rs 183.06 crore. The interest rate on Innovative Perpetual Debt Instrument and Perpetual Cumulative Preference Shares will be decided by the Government in consultation with the bank.
The annual floating coupon rate on the proposed ‘Perpetual Non-Cumulative Preference Shares’ of Rs 200 crore may be benchmarked to the repo rate with a spread of 100 basis points with annual rests, which would be re-adjusted annually on the prevailing repo rate on the relevant date.
However, keeping in view the weak financial position of the bank and to enable it to strengthen its capital base, PSB may be allowed to pay a coupon benchmarked to the repo rate (without any spread) for the years 2008-09, 2009-10 and 2010-11 and thereafter, at the repo rate with a spread of 100 basis points, according to an official release.