People exersise outside the North Block of the Central Secretariat building which houses the Ministry of Finance (Photographer: Prashanth Vishwanathan/Bloomberg)

Corporation Bank To Raise Rs 2,555 Crore By Issuing Shares To Government

Public sector lender Corporation Bank today said its board has approved a plan to raise Rs 2,555 crore by issuing shares to the government.

“The Board of Directors of the Bank has approved the proposal to raise capital of the Bank by way of preferential allotment of equity shares to Govt of India to the extent of Rs 2,555 crore,” Corporation Bank said in a filing.

The process to raise fund will be subject to all necessary approvals of RBI, SEBI, the central government and shareholders of the Bank, it said.

The fundraising is part of the Finance Ministry’s plan to infuse of Rs 11,336 crore in five state-owned lenders including Punjab National Bank, Corporation Bank, and Andhra Bank to help them meet the regulatory capital requirement which was approved on Tuesday.

This is the first capital infusion in the current fiscal and the remaining amount of Rs 53,664 crore will be disbursed during the course of the year.

As per the plan, the sources said that PNB, which was hit by the Nirav Modi fraud will get the highest amount of Rs 2,816 crore, while Allahabad Bank will get Rs 1,790 crore.

Andhra Bank will get Rs 2,019 crore, Indian Overseas Bank - Rs 2,157 crore and Corporation Bank - Rs 2,555 crore.

These banks have come under pressure because of interest payments to their bondholders of Additional Tier 1 (AT-1) bonds, the sources said.

As a result, they were facing the risk of breaching the regulatory capital requirement, they said, adding that the ministry has decided to provide capital to 4-5 banks which are facing an “acute shortage”.

Banks raise capital through AT1 bonds, which are perpetual in nature and therefore provide a higher interest rate to investors. A high level of bad loans and widening losses have made it difficult for banks to service these bonds from their own earnings.

The infusion will be part of the remaining Rs 65,000 crore out of Rs 2.11 lakh crore capital infusion over two financial years.

The government had announced Rs 2.11 lakh crore capital infusion programme October last year. As per the plan, the public sector banks (PSBs) will get Rs 1.35 lakh crore through recapitalisation bonds, and the balance Rs 58,000 crore through raising of capital from the market.