New Delhi: The Indian cabinet has approved restructuring the capital base of state-run UCO Bank, the finance minister said on Friday, as the government tries to improve valuations before the lender taps the capital market.
The government will convert Rs2.5 billion of UCO’s equity into perpetual non-cumulative preference shares, Palaniappan Chidambaram told reporters.
Last week, the government sought parliament’s approval for equity restructuring of two state-run banks - UCO as well as Punjab & Sind Bank - as part of the Rs1.06 trillion extra spending proposal. Chidambaram said UCO Bank has an equity capital of Rs7.99 billion, highest among all the listed state banks, which was suppressing the bank’s earning per share (EPS) and making it difficult for the bank to service the high proportion of equity.
“Reduction in pure capital will improve the EPS and other financial (indicators) so that the bank has more attractive capital structure,” the minister said.
“If and when it approaches the capital market it can have an attractive capital structure and it can raise Tier-I capital.”
Chidambaram however did not give a timeframe for the bank’s follow-on public offer.
UCO Bank shares were up 5.87% at Rs26.15 at 11.00 a.m. local time in a firm Mumbai market.