The shareholders of the Kolkata-based, UCO Bank have authorised the bank to raise Rs625 crore by converting part of the government's equity (74.98 per cent) into preference shares and then come up with a follow-on public issue, as part of an asset expansion plan.
The bank will raise Rs325 crore by March end through perpetual non-cumulative preference shares to institutional investors and the remaining Rs300 crore would be raised later by way of an allotment to the government.
Under the plan, the bank had proposed to convert Rs300 crore of the government's equity into preference shares.
The bank needs to augment its net owned capital to comply with Basel II norms from April this year and support business growth.
While a dividend is paid every year to preference shareholders, it does not become the first claim in perpetual non-cumulative preference shares.
The government, however, is yet to give its final approval to the proposal, which prevents the bank from entering the capital market
"We are not pursuing the proposed public issue right now. The delay in the government decision and the current stock market conditions are not conducive for the issue. Therefore, we have decided to raise capital through perpetual non-cumulative preference shares, for which we have got shareholders' approval at an extraordinary general meeting today," said S K Goel, chairman and managing director of UCO Bank.
"Shareholders have unanimously approved mobilising the entire amount. However, we have decided to mop up between Rs300 crore and Rs325 crore before the end of this month," Goel said.
Although the Reserve Bank of India (RBI) has approved the use of perpetual non-cumulative preference shares to expand the Tier I capital of banks, it announced a final guideline to raise money through this instrument in October last year.
The money raised through perpetual non-cumulative preference shares will raise Uco's capital adequacy (Basel II compliant) ratio to around 11 per cent from 10.33 per cent as at the end of December 2007.