Home >Companies >Karnataka Bank puts new biz plans on hold

By Reuters

Mumbai: Karnataka Bank Ltd has put on hold its plans to set up an asset management joint venture citing capital constraints, a top official said on 28 August.

“We are putting it on hold and may look at it depending upon availability of capital," chairman Ananthakrishna told Reuters from the southern city of Mangalore.

The bank would need capital to fund its projected business growth of 20-22% and also for the non-life insurance joint venture, he said. It had earlier said its planned joint ventures would contribute as much as 15% to revenues by March 2009.

“It should be a gradual process and getting into too many joint ventures at a time would not be advisable," he said.

However, he added, the bank plans to enter into online broking in a tie-up with an established broking firm. “We are in talks with 4-5 players in the business," he said.

The private-sector lender holds 15% in the insurance joint venture while the other partners are state-run Allahabad Bank, Indian Overseas Bank, food and personal care maker Dabur India and Sompo Japan Insurance Inc.

Rising disposable income and greater consciousness for health cover are boosting demand for insurance in India, which has one of the lowest insurance penetrations in Asia, according to Standard & Poor’s.

State-owned Life Insurance Corp of India dominates the industry with over 70% market share while private sector players have been growing aggressively.

The joint venture has been named as Sompo Universal Ltd and O.N. Singh, former chairman of Allahabad Bank, has been appointed managing director, he said. The initial capital base of the joint venture would be Rs100 crore, Ananthakrishna said.

Karnataka Bank recently raised Rs121 crore through Tier-II bonds, as part of its plan to raise up to Rs150 crore.

Its capital adequacy ratio was 12.72%, he said.

The bank had headroom to raise another Rs200-300 crore and would consider doing this some time in September or October, he said.

Shares in the bank were trading 2.27% up at Rs180.60 in the Mumbai market.

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