Government approves restructuring of equity capital of Punjab and Sind Bank
Indian Goverment has allowed restructuring of equity capital of Punjab and Sind Bank. On completion of the restructuring process, PSB’s paid-up equity capital would stand reduced to Rs. 183 crore from the existing Rs. 743 crore. This would mean substantial improvement in the bank’s fundamentals, including the EPS (earning per share).
This will enable the bank to go for an Initial Public Offer at a reasonable premium for raising additional capital from the market. The enhanced capital will also enable the bank to expand its business in compliance with Basel-II requirements and, thereby, improve its financial position.
PSB has now been making profits for the last three years. The bank’s gross NPA (non-performing asset) declined from over nine per cent in 2005-06 to below one per cent within two years. During the period, its net NPA came down from 2.43 per cent to 0.37 per cent. For 2007-08, the bank posted a net profit of Rs. 382 crore.
PSB is one of the two public sector banks — the other being United Bank of India — in which the Government has 100 per cent equity holding.
Following is the restructuring plan approved by the government-
i) Re-structuring the equity capital of the Punjab and Sind Bank by converting an amount of Rs. 160 crore into ‘Innovative Perpetual Debt Instrument’ ( under Tier-I), Rs. 200 crore into Perpetual Non-cumulative Preference Shares (under Tier II Capital ), while retaining Rs. 183.06 crore as the equity capital of the Bank.
ii) The annual floating coupon rate on the proposed “Perpetual Non-cumulative preference Shares’ of Rs. 200 crore may be benchmarked to Repo Rate with a spread of 100 basis points with annual rests, which would be re-adjusted annually on the prevailing Repo Rate on the relevant date. However, keeping in view the weak financial position of the Bank and to enable it to strengthen its capital base, P&SB may be allowed to pay a coupon benchmarked to Repo Rate (without any spread) for the years 2008-09, 2009-10 and 2010-11 and thereafter, at the Repo Rate with a spread of 100 basis points.
iii) The rate of interest on ‘Innovative perpetual Debt Instrument’ and ‘Perpetual Cumulative Preference Shares’ will be decided by the Government in consultation with the Bank
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