Kumbakonam-basedCity Union Bank Ltd (CUB), an old private sector bank with a presence mostly in Tamil Nadu, is looking to raise around Rs250 crore from the market in two tranches.
CUB officials said the private lender plans to raise Rs100-150 crore in the first quarter of fiscal 2009 through either a preferential share issue or share placement with qualified institutional buyers (QIBs). The balance would be raised a year later through a yet another round of external funding.
The 103-year-old bank hopes to cross the Rs1,000-crore networth mark, which is the sum of a bank’s share capital and free reserves, thereby enabling the lender to triple its business to Rs25,000 crore over the next three years.
“We will be considered a serious player in the market, when we achieve the Rs1,000-crore networth mark,” says N. Kamakodi, executive director of CUB.
CUB’s move comes at a time when India’s central bank, the Reserve Bank of India, is looking to liberalize entry norms for foreign banks to set up and expand operations in the country after 2009, as per a World Trade Organization agreement. Small private sector banks, such as CUB, because of their existing branch network and strong regional presence, are considered prime takeover targets.
Earlier in March, CUB raised Rs140 crore by way of preferential issue of shares to six investors that included India’s biggest engineering firm Larsen & Toubro Ltd. The funds infusion helped the lender increase its capital adequacy ratio—the measure of the bank’s own capital to risk-weighted assets, to more than 13%. In addition, CUB also was able to secure business from the engineering giant. On the possibility of a takeover by a foreign bank after 2009, Kamakodi says the bank would choose investors, who would be interested in remaining invested with CUB for a time frame of at least three to five years. “We will make sure our performance is much better valued than if managed by another bank, and also we would make sure that CUB’s investors remain with the bank for a long time,” Kamakodi adds.
In addition, the bank would also prefer investors who could add value in terms of generating additional revenue by way of cross-selling or by helping the lender offer new services.
CUB offers cash management services to the subcontractors of L&T, which has around 4.87% equity stake in the lender.
Kamakodi says the bank is in the process of extending these services to a wider customer base.