Old private banks led by Bharat Overseas Bank, Catholic Syrian Bank, City Union Bank Dhanalakshmi Bank Ltd, Sangli Bank Ltd, Development Credit Bank and Lord Krishna Bank will be forced to raise capital shortly.
This follows the Reserve Bank of India guideline directing banks to increase their net worth to Rs 300 crore (Rs 3 billion) within 3 years.
The RBI norms may trigger mergers and acquisitions on the turf of old private banks.
"All banks will have to submit a roadmap to the central bank outlining their plans to raise their net worth," said R M Nayak managing director and chief executive officer Lord Krishna Bank. The bank recently raised Rs 45 crore (Rs 450 million) through a rights issue.
"We will submit a detailed roadmap to the central bank in consultation with the bank board shortly," said A Krishnamoorthy, chairman and chief executive officer the Laxmi Vilas Bank Ltd.
DSP Merrill Lynch has been given the mandate by Lord Krishna Bank to scout for a strategic investment partner, which can pump in fresh capital in the bank.
Now that the guidelines are out -- the bank in association with DSP Merrill Lynch -- will shortly take a decision on the means through which we will pump in fresh capital in the bank and also reduce promoter holding in the bank, said Nayak. Mohan Puri holds 65 per cent stake in the bank.
Reserve Bank of India decision to increase FDI limit to 74 per cent has come as a welcome move for Development Credit Bank and Centurion Bank. Centurion Bank raised around Rs 90 crore (Rs 900 million) in August 2004.
"We are now in a position to raise Rs 300 crore ($65 million) through a overseas issue preferably global depository receipts subject to regulatory approvals," said Anil Jaggia chief operating officer of Centurion Bank. Fresh infusion of capital of around Rs 300 crore (Rs 3 billion) will enable boost the banks' net worth to around Rs 464 crore (Rs 4.64 billion), Jaggia said.
"With clarity on foreign investment in Indian banking sector the Chryscapital investment in Development Credit Bank is also expected to receive RBI clearance," banking sources said.
Private equity investor Chryscapital had picked up around 12 per cent stake in DCB at Rs 55 a share through a preferential allotment in May last year.
ING set to test 74% limit
ING is likely to be the first foreign bank to test the 74 per cent threshold limit now allowed to foreign banks. ING now has 43.8 per cent in the Bangalore-based ING Vysya Bank.
With the Reserve Bank of India permitting foreign investment up to 74 per cent in private sector banks, ING is likely to buy out International Finance Corporation's (IFC) 5 per cent stake in the private sector bank.
Sources close to the development said that ING would need to take a initiative and move the regulator. "It will be a test case for the higher FDI in banking. Although the norms are not very clear still we feel that ING will allowed to hike its stake," said a banker.
