Bank of India will make a preferential issue of fresh equity shares worth 12.8 per cent of its existing capital to the government of India and to LIC.

The bank informed stock exchanges on Tuesday that its board of directors has approved a proposal to raise capital through allotment of up to 7 crore shares to its promoter and LIC.

The Bank has convened an extraordinary general meeting of shareholders on March 24, 2012 for obtaining approval.

“It is in line with the government's strategy to capitalise PSU banks, and the beneficiaries are Dena Bank, Central Bank, SBI, IDBI Bank, Bank of India and Syndicate Bank,” said Mr Kishor Ostwal, CMD CNI Research.

Marketmen expect that the price of the preferential issue would be at a 10 -15 per cent discount to current market prices.

Analysts said that the government is taking cash rich LIC's help to capitalise government banks.

According to SEBI's ICDR regulations 2009, preferential allotment is done at a price that is the higher of the average of the weekly high and low of the closing prices of the last six months or the average of the weekly high and low of closing prices, two weeks preceding the relevant date.

The relevant date is 30 days prior to the date on which the meeting of shareholders has been scheduled to consider the proposed preferential issue.

However, allotment to institutions (maximum five) are done at a price which is not less than the weekly high and low of closing prices two weeks preceding the relevant date.

LIC had 9.32 per cent stake in the bank as on September 30 2011, which it reduced to 8.93 per cent as on December 31 2011.

The Bank of India scrip closed at Rs 396.6 to a share on the BSE, up 4.27 per cent over its previous close. The notification came after close of market hours.

raghavendraraok@thehindu.co.in

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