Date:19/06/2007 URL: http://www.thehindubusinessline.com/2007/06/19/stories/2007061904640100.htm

PNB drops equity offer plan

Our Bureau

May opt for tier-II capital, innovative perpetual debt to fund growth

New Delhi June 18 Punjab National Bank (PNB) has decided against making any equity offering this fiscal that could lead to trimming of the Government stake from 57.8 per cent to 51 per cent.

The bank, however, plans to raise tier-II capital and even look at innovative perpetual debt to fund business growth this fiscal.

When asked whether the bank plans to make a follow-on equity offering this fiscal, Dr K.C. Chakrabarty, the new Chairman and Managing Director, said: "Absolutely not. I have examined the issue.

"This is not the appropriate time to sell tier-I equity and raise capital. We only have about six per cent gap and must use it judiciously."

Dr Chakrabarty, who took charge on June 5, said that there were many other alternatives available with the bank for raising capital, including tier-II capital and innovative perpetual debt.

PNB may go in for Rs 500 crore of tier-I perpetual debt and Rs 1,000 crore of tier-II capital this fiscal.

"Let us first exhaust the alternatives and then we can look at raising equity. I want raising of equity to be the last resort," he told newspersons.

In May, PNB's senior management had indicated that the equity offering could happen sometime this fiscal to fund business growth and overseas expansion and meet Basel-II requirements.

The board of directors had even given in-principle nod in January 2007 for an equity offering that would lead to the dilution of Government's stake in the bank from 57.8 per cent to 51 per cent.

Meanwhile, Dr Chakrabarty also said that PNB would look to curtail overall credit growth of the bank to 20 per cent this fiscal against growth of 28 per cent seen last fiscal.

"Credit growth need not be more than 20 per cent when the deposit growth rates are 17-18 per cent.

An 18-19 per cent growth in credit is sufficient to meet the normal productive economic growth of the economy."

On deposits rates, he indicated that these would soften. The current deposit rates on offer are quite high and would be difficult to sustain. "It is suicidal (for banks to offer such high rates)."

On interest rates, he said that they would remain stable in the near future.

On whether there are plans for acquisition or merger with any bank, Dr Chakrabarty said that the time for merger has not yet come.