More reports on: Banks general, City Union Bank
City Union Bank attracts six investors news
Venkatachari Jagannathan
07 May 2007

Chennai: After raising Rs20.28 crore from Larsen & Toubro Limited through a preferential issue of 12 lakh shares of Rs10 face value at Rs169 per share earlier this year, the board of the Kumbakonam-headquartered City Union Bank Limited has decided to raise further funds through another round of preferential allotment.
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This time the bank will tap funds from Life Insurance Corporation of India by issuing 15 lakh shares and another 3 lakh shares to L&T. The allotment will be made to both at Rs169.15 per share and at Rs190 per share to FMO Netherlands (15 lakh shares), Ares investments LLC (12.5 lakh shares), Argonaut Ventures, US (12.5 lakh shares), and Yatish Trading Company Pvt Ltd (10 lakh shares). Post issue, the equity of the bank would increase to Rs32.3 crore from Rs25.2 crore at present.

All the investments will have a lock-in period of one year. According to CEO S Balasubramanian, chairman, City Union Bank Limited, the differential pricing reflects the relationship that the bank has with the investors. "We are one of the leading corporate agents for LIC, which has also decided to have banking relationship with us. Similarly, we hope to get good business from L&T. The others are pure investors."

According to general manager N Kamakodi, there is a potential of around Rs30 crore fee-based income from L&T's business associates over coming three-year period. However, L&T is not looking at City Union Bank for its banking or fund requirements.

The bank is targeting a total business of Rs25,000 crore (advances Rs10,000 crore; deposits Rs15,000 crore) by 2010-2011. "To enable that level of business, the bank's net worth should be around Rs1,000 crore after factoring all prudential capital norms. As generating such a sum through internal accruals would take a long time, the bank is resorting to preferential issue route to beef up its net worth," reasons Balasubramanian.

The bank would net around Rs125.44 crore (Rs6.8 crore equity; Rs118.64 crore share premium) from the proposed preferential issues taking its net worth to over Rs411 crore. As on 31st March 2007 the bank's net worth is Rs286 crore. In addition, the total holding of each of these entities in the City Union Bank's enhanced equity will be less than 5 per cent. The bank had initially proposed 9.9 per cent holding for L&T, but the Reserve Bank of India did not give its approval.

Meanwhile, the bank closed FY 07 with a total business of Rs8,000 crore (deposit Rs4,698 crore; advances Rs3,378 crore) as against Rs6,128 done the previous year (deposit Rs3,517 crore; advances Rs2,611 crore). According to Kamakodi, the bank is satisfied with the present credit: deposit ratio and would maintain that for some more years to come. "Our net non-performing asset stood at 1.75 per cent. The bank's investment portfolio is around Rs1100 crore and we have no plans to accelerate investments in equities."

Balasubramanian says that the bank will expand its branch network by opening 15 branches this fiscal, most of them in Maharashtra, Gujarat and Andhra Pradesh. "Once that is over, we will approach the RBI for licence to open more branches."

During the fiscal 2006-07, City Union Bank increased its headcount by 200 to 1800. "Based on the needs further recruitments will be made," says Kamakodi. The bank is also awaiting RBI's permission to split its present Rs10 stock into Re1 face value.


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City Union Bank attracts six investors