Litigation-prone Canara Bank comes out with Rs 385-cr IPO

As per its prospectus, Canara Bank, as of 31 March 2002, is fighting 1,220 cases. The numbers for Union Bank of India and Allahabad Bank are 1,002 and 707, respectively. Canara Bank is contesting claims of over Rs 270 crore and in many cases necessary provisions has not been made.

When queried about the investor-friendliness of Canara Bank, given the track record of its subsidiaries like the mutual fund outfit that first turned around on its issue promises, Canara Bank chairman and managing director R V Shastri says: “All those things are over. We are now starting on a clean slate.“

The bank's public offering (the issue of 11-crore equity shares of Rs 10 each at a premium of Rs 25 per share) opened on 18 November 2002, and is basically for the purpose of shoring its long-term capital needs.

The bank's capital adequacy ratio (CAR) now stands at 11.88 per cent. The increase in the tier-I capital through retained earnings alone may not be enough to enable the bank to maintain a sufficient CAR in the future. The bank's tier-I portion of the capital has come down in the recent years.

Post-issue, the equity base will go up to Rs 410 crore and the holding of the Indian government will come down to 73.17 per cent. According to Shastri, investors have an option to subscribe to the shares at a discount of 58 per cent to the net asset value of the share.

In the last financial year, Canara Bank increased its business by Rs 10,255 crore to Rs 97,156 crore (deposits: Rs 64,030 crore; advances: Rs 33,126 crore). The income from advances improved to Rs 3,130.48 crore and the investments income saw an increase of Rs 262 crore to Rs 2,496.71 crore on a total portfolio of Rs 23, 220.10 crore.