The Government's stake in the equity of Indian Bank will go up to 81.51 per cent with the bank shareholders today approving the conversion of Perpetual Non-Cumulative Preference Shares (PNCPS) into equity.

Apparently, the whole exercise has been done to enable the bank meet the Basel III norms without the GoI incurring any additional expenditure while hiking its stake in the bank.

In a communication to the stock exchanges, the bank said the shareholders had approved at an EGM today the issue and allotment of 3,50,78,488 equity shares of Rs 10 each at a conversion price of Rs 114.03 (including premium of Rs 104.03) aggregating Rs 400 crore by converting Perpetual Non-Cumulative Preference shares into equity to GoI on preferential basis. With the issue of these shares, the GoI’s holding in the bank’s equity capital would go to 81.51 per cent from the current 80 per cent, the statement said.

Earlier in an explanatory statement to the preferential issue, the bank had pointed out that its paid up capital also included PNCPS of Rs 400 crore, consisting of 4,00,00,000 PNCPS Rs 100 each, all of which were held by the Central Government. However, the PNCPS were not considered for 100 per cent weightage under Tier I Capital as per Basel III norms. Indian Bank had requested the GoI to consider the conversion of PNCPS into equity to enable it meet the Basel III norms. Moreover, the move would 'create headroom’ for raising Basel III compliant bonds under tier I / tier II capital and also take the Qualified Institutional Placement / Follow-on Public Offer route to raise equity. This was agreed to by the Centre, subject to necessary approvals.

The bank had clarified that the conversion of PNCPS into equity would not lead to any cash outflow to the GoI.

The conversion price of Rs 114.03 (including a premium of Rs 104.03) was slightly higher than the closing price of Rs 96.05 of the stock on the BSE today.

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