Saraswat Co-operative Bank and Shamrao Vithal Co-operative Bank plan to strengthen their capital funds by mobilising long-term (subordinated) deposits (LTSDs). Between them, these two multi-state co-operative banks will be raising about Rs 200 crore through LTSDs of minimum five years duration in the next one month to support credit growth.

While Saraswat Co-operative Bank (SCB) plans to mobilise about Rs 160 crore by offering 9.50 per cent interest on LTSDs, Shamrao Vithal Co-operative Bank (SVCB) will raise Rs 50 crore by offering 10 per cent interest.

Last year, SCB mopped up Rs 300 crore through LTSDs of five years duration at 9 per cent interest and SVCB raised Rs 38.81 crore through LTSDs of seven years duration at 9 per cent interest.

LTSD investments are not protected by deposit insurance. Further, no loans can be obtained against such deposits and they cannot be withdrawn before their maturity. In view of their inability to attract equity/quasi-equity investments to improve financial health, the RBI, two years ago, had allowed urban co-operative banks (UCBs) to mobilise resources through LTSDs of minimum tenure not less than 5 years to augment their capital funds. These deposits are eligible to be treated as Tier-II capital.

Additionally, UCBs were allowed to strengthen their Tier-II capital by issuing Perpetual Cumulative Preference Shares, Redeemable Non-Cumulative Preference Shares and Redeemable Cumulative Preference Shares. Further, UCBs were also allowed to issue Perpetual Non-Cumulative Preference Shares (PNCPS). These shares are eligible to be treated as Tier I (core) capital.

Business expansion

In addition to mobilising resources through LTSDs, Saraswat Co-operative Bank will also consider raising Rs 160 crore by issuing PNCPS at 10 per cent coupon rate, said Mr S.K. Banerji, Managing Director.

SCB, which is India's largest multi-state UCB with 203 branches across Maharashtra, Karnataka, Goa, Gujarat, Madhya Pradesh and Delhi, plans to double its business size (deposits and advances) to Rs 50,000 crore by March 2016.

Shamrao Vithal Co-operative Bank, according to its CEO, Mr Shrinivas D. Joshi, hopes to double its business size to Rs 20,000 crore in three years. The country's third largest UCB, it has a network of 105 branches across Maharashtra, Karnataka, Goa, Delhi, Gujarat and Andhra Pradesh.

“We are gradually building up our capital funds through plough-back of profits and also by raising resources through LTSDs. These capital raising plans will go a long way in furthering our goal of doubling our business to Rs 20,000 crore and doubling our branch network to 200,” said Mr Joshi.

comment COMMENT NOW