Pravin Kumar Tayal and Sanjay Kumar Tayal, the promoters of Bank of Rajasthan Ltd, an old private sector bank, are reducing their stakes in the lender from 43% to 33%.

The offloading is being completed through preferential allotments of equity shares to a clutch of foreign institutional investors (FIIs).

The bank is looking to raising its capital from Rs134 crore to Rs167 crore.

On Friday, the bank informed the stock exchanges that BNP Paribas SA, an investment arm of French bank BNP Paribas, and Glassia Mauritius Ltd, an investment arm of US-based hedge fund Avenue Capital Group, have been allotted 7 million and 6.5 million equity shares, respectively, on a preferential basis at a share price of Rs200.

Cap on holdings: RBI ownership norms restrict any single entity from owning more than 10% interest in a bank.

On Friday, Bank of Rajasthan’s stock closed at 190.3 on the Bombay Stock Exchange (BSE)—gaining 65% on its previous close. Over the past week, the lender’s stock has gained nearly 17%, rising from 62.80 to 90.30.

The Tayals have been under pressure from the banking regulator, the Reserve Bank of India (RBI), to dilute their holding. RBI ownership norms restrict any single entity from owning more than 10% interest in a bank.

However, the central bank has not provided any timeframe to public sector bank promoters to bring down their stakes. RBI regulations also stipulate that all Indian banks must have a net worth of at least Rs300 crore. Bank of Rajasthan’s net worth in March 2007 was Rs426.28 crore.

Deepak Sarpuria, deputy managing director of the bank, said FIIs are picking up stake in his bank in the run-up to the opening up of the sector for foreign players in 2009. RBI had earlier said it would take a relook at the ownership policy in banks in April 2009.

Current regulations do not allow a foreign bank to own more than 5% in a local bank. There is widespread anticipation that RBI would relax the policy and allow foreign banks better play in the local market.

Some of the weak, old private sector banks have merged with stronger ones ahead of the opening up of the sector.

In the recent past, Lord Krishna Bank Ltd, a south India based bank, has been merged with Centurion Bank of Punjab. Two old banks of Maharashtra, United Western Bank Ltd and Ganesh Bank of Kurundwad Ltd, have been merged with Industrial Development Bank of India Ltd and Federal Bank Ltd,respectively.

Sarpuria said though there is “no immediate need for capital" for Bank of Rajasthan, the lender is looking to strengthen its net worth and increase its branch network. The bank has 469 branches and has applied to RBI for an additional 40 branches. The bank posted a 30% increase in net profit, at Rs24 crore, for the quarter ended September, compared with Rs19 crore in the corresponding quarter last year.