Kolkata: Uco Bank on Thursday said it had concluded an agreement to sell 71.7 million shares to Life Insurance Corp. of India Ltd (LIC), the country’s biggest insurer, on a preferential basis to add around Rs270 crore to its equity capital.
LIC, the biggest shareholder in the lender after the Union government, historically held 14-14.5% in Uco Bank, a Kolkata-based public sector lender wallowing in losses for the past few quarters.
The insurer’s stake went down to 12% at the end of June from 14.36% three months ago following the government’s infusion of Rs935 crore into the bank’s equity capital in May. The government’s stake rose from 72.83% to 77.54% at the end of June.
Last month, the bank sold shares again to its principal shareholder to raise Rs775 crore. As a result, the government’s stake is estimated to have gone up to 80.36% at the end of September—an increase of 7.5 percentage points in under six months.
Under Indian securities laws, an increase of stake by more than 5 percentage points will have normally required an investor to make an open offer, but according to a key official at Uco Bank, the government has obtained exemption from the regulator. However, the Securities and Exchange Board of India, or Sebi, has imposed certain conditions, the official said, asking not to be named. The market regulator has said Uco Bank must pare the government’s stake in it to 75% within 12 months. The share sale to LIC will help.
In June, Uco bank’s board had approved a plan to raise up to Rs4,243 crore, without which it might have to halt lending. Around Rs3,000 crore of this amount is expected to come from a share sale, according to the official cited above.
The bank’s capital adequacy, a measure of financial strength expressed as the ratio of capital to risk-weighted assets, was 9.9% at the end of June, down from 11.7% a year ago. With sticky loans piling up, the bank posted a net loss of Rs440.5 crore in the June quarter, compared with a net profit of Rs256.7 crore in the same period in the previous year. The bank ended fiscal 2016 with a net loss of Rs2,799 crore.
Further funding from the government is tied to an improvement in its performance, said the official. Besides cleaning up its books and scaling up profitable businesses, the bank is looking to pare operating costs, he added. At the same time, the bank cannot rely on the Union government alone to provide a lifeline, so it is trying to tap other potential investors, the official said.
Uco Bank’s shares fell 1.06% to Rs37.50 each on the BSE on Thursday, while the benchmark Sensex fell 0.4%.