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Punjab & Sind Bank plans equity rejig

NEW DELHI: In a bid to shore up the financial position of Punjab & Sind Bank (PSB), the Union Cabinet on Friday approved a revamp of the weak public sector bank’s equity structure to help it raise funds from the capital market.

Briefing newspersons here on the Cabinet decision, Science and Technology Minister Kapil Sibal said: “Restructuring would enable the bank to go in for initial public offer...for raising additional capital from the market.”

As per the revamp programme, restructuring of PSB’s equity capital is to be carried out by converting Rs. 160 crore into ‘innovative perpetual debt instrument’ and another Rs. 200 crore into ‘perpetual non-cumulative preference shares’. An amount totalling Rs. 183.06 crore is to be retained as the bank’s equity capital.

The coupon rate on the perpetual non-cumulative preference shares of PSB is likely to be benchmarked to the Reserve Bank’s key lending (repo) rate with a spread of 100 basis points on the prevailing rate.

The equity restructuring, Mr. Sibal said, would enable PSB to expand its business in keeping with Basel-II requirements (international risk norms) and thereby improve its financial position. The timing of the IPO (initial public offering) would be decided by the bank’s board.

On completion of the restructuring process, PSB’s paid-up equity capital would stand reduced by Rs. 560 crore at Rs. 183 crore from the existing Rs. 743 crore. In effect, it would mean substantial improvement in the bank’s fundamentals, including the crucial EPS (earning per share).

Incidentally, PSB is one of the two public sector banks — the other being Kolkata-based United Bank of India — in which the Government has 100 per cent equity holding. It is due to PSB’s “weak financial position” that a concession has been granted to the bank by way of equity restructuring.

After being deep in the red, PSB has been making profits for the last three years. The bank’s gross NPA (non-performing asset) declined from over nine per cent in 2005-06 to below one per cent within two years. During the period, its net NPA came down from 2.43 per cent to 0.37 per cent. For 2007-08, the bank posted a net profit of Rs. 382 crore.

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