Daijiworld Media Network – Bangalore
Source: Business Standard

Bangalore Apr 22: Reserve Bank of India (RBI) has rejected the Mangalore-based private sector lender’s proposal to bring in Washington-based International Finance Corporation (IFC) as an equity investor through a preferential allotment of shares. In view of this decision Karnataka Bank will be taking up the matter of bringing in a fresh investor at its next board meeting to be held on Thursday April 24.

Speaking on the issue Karnataka Bank chairman and managing director Ananthakrishna informed “We do not know the reason for this rejection by RBI. They have not cited any reason and they have powers to do so. However, we have umpteen number of options to raise funds. We thought it was an easier and less expensive option to raise funds. We will now take up the matter at the next board meeting and find a way out.”

Furthermore, he said Karnataka Bank was planning to offer 6.3 million shares of Rs 10 each at a price of Rs 225 apiece on a preferential basis to IFC by divesting 4.99 per cent stake for a little over Rs 140 crore. At present, FIIs hold nearly 40 per cent in this bank. If the IFC investment would have been approved, IFC, the World Bank subsidiary, would have had a one year lock-in period.

Company secretary of Karnataka bank Balachandar expressed his surprise at the RBI’s decision to reject the bank’s move to raise funds from IFC without assigning any reason for the same. He stated “It was our maiden experience to raise funds from a private placement of equity shares.” He also clarified that while it was technically possible for them to get a new proposal to raise funds from IFC, they might not do so, instead would work out a plan to bring in a new investor.

With regard to financial position of the bank, Ananthakrishna informed that they would be reviewing their fund position during the annual results, which are due in the next two weeks, and then decide on their next move. According to him the financial position of the bank is pretty comfortable. “The board will decide whether to go for a new investor or a follow on public issue or a rights issue,” he added.
 
Giving more details on the same he said that the bank’s current capital adequacy ratio was 13.11 per cent as on December 31, 2007. During the last financial year, Karnataka Bank raised Rs 150 crore through subordinated bonds to augment its tier-II capital. On June 30, 2007, it raised Rs 120.5 crore and another Rs 29.5 crore on March 29, 2008.