Allahabad Bank, one of the state-owned banks in the country, aims to raise about Rs.1,900 crore through various means. While the total requirement is about Rs.9,000 crore, the bank also seeks capital infusion of Rs.7,000 crore from the government. The decision to issue equity shares to raise additional capital was taken at the bank’s annual general meeting of shareholders.
In a regulatory filing, Allahabad Bank stated that it will raise capital by issuing equity shares in qualified institutional placement. In addition to QIP, a combination of other instruments such as follow-on public offer (FPO) and rights issue will also be used to generate the required capital.
This capital raising scheme is a part of the bank’s revival plan submitted to the government. The government currently holds about 65% ownership in the bank. Various regulatory restrictions were placed on Allahabad Bank due to the poor quality of its loans. It was also placed under the prompt corrective action (PCA) by the Reserve Bank of India owing to its high ratio of non-performing assets.
At the end of the March quarter, the bank reported gross NPA ratio of 15.96% and net NPA ratio of 8.04%. Its return on assets (ROA) for the same period stood at a negative 5.77%.
With the additional infusion of capital, Allahabad Bank aims to bounce back from its current financial turmoil. The bank’s executive director SK Sahoo stated that this additional infusion of capital will help the bank come out of PCA by the year 2020.
Allahabad Bank is also currently looking forward to recovering Rs.5,500 crore of its stressed assets this fiscal year. The bank noted that it has already recovered about Rs.1,300 crore from Bhushan Steel and Electrosteel this year.
Various stressed assets have already been referred to the National Company Law Tribunal under the Insolvency and Bankruptcy Code. At present, the bank has referred about 94 accounts worth Rs.12,000 crore for bankruptcy resolution. Some of the major defaulters with the bank include Videocon, Bhushan Power & Steel, Alok Industries, and Essar Steel.
Source: Economic Times