State-owned Central Bank of India will raise up to Rs 5,000 crore of equity capital through various modes, including follow on public offer and rights issue, to maintain its capital adequacy ratio.
The bank said it plans to raise capital through follow on public offer (FPO), rights issue or qualified institutional placement (QIP), and will seek approval from shareholders in the upcoming annual general meeting to be held on August 7, 2020.
As per Basel III regulations, the bank is required to maintain minimum common equity tier-1 (CET 1) ratio of 5.50 per cent plus capital conservation buffer (CCB) of 2.50 per cent in the form of equity capital, tier-1 ratio of 9.50 per cent and overall CRAR of 11.50 per cent, Central Bank of India said in its annual report for 2019-20.
Indian banks have been implementing the globally accepted Basel III norms in phased manner since April 2013.
To comply with Basel-III capital regulations, banks globally need to improve and strengthen their capital planning processes.
These norms are being implemented to mitigate concerns on potential stresses on asset quality and consequential impact on performance and profitability of banks in the aftermath of 2007-09 global financial crisis.
‘The bank will be requiring capital to meet the prescribed capital adequacy ratio (CRAR). Therefore, your directors have decided to raise equity capital up to Rs 5,000 crore through various modes such as – Follow-on-Public Issue, Rights Issue, Qualified Institutions Placements,’ the bank said in the annual report.
The enhanced capital will be utilised for general business purposes of the bank, it said.
In his message to shareholders, bank’s chairman Tapan Ray underlined the unprecedented disruptions across the world due to the COVID-19 pandemic, leading to considerable adverse impact on global economy.
Government’s recapitalisation of public sector banks in 2019 and various measures are to strengthen the banking system, Ray said.
‘Banks have now moved towards risk based pricing, creation of stressed asset verticals, cash-flow ring fencing, etc. with a view to improve efficiency. Such measures would inevitably strengthen the efficacy of the banking system and increase credit flow in the economy.
‘To ensure better transmission of policy rates to the real economy, the banks have linked their various products to external benchmarks. This move would further enhance the efficiency gains for the economy as a whole,’ he said.
The bank’s managing director and chief executive officer Pallav Mohapatra said high frequency data indicates that the COVID-19 pandemic adversely impacted the economy in Q1 of financial year 2020-21.
Asset quality continued to be the major concern of the banking industry in general, and particularly in the bank for last 3-4 years, Mohapatra said.
Cash recovery, including sale of non-performing assets (NPAs), fell to Rs 3,326 crore in FY20 against Rs 5,161 crore in the preceding fiscal, while recovery in written off accounts rose to Rs 693 crore from Rs 557 crore, he said.
‘We expect resolution of certain big NPA accounts through NCLT under IBC and outside during 2020-21. We shall continue to have focused efforts to maximize NPA recovery, improve asset quality and earn net profit during the year FY21,’ Mohapatra said.