Central Bank of India has become the latest lender to raise capital from Life Insurance Corporation of India (LIC) to supplement the funds infused by the government into state-owned banks.
In a notification to stock exchanges on Tuesday, Central Bank said that it has raised Rs 156 crore through a preferential allotment of shares to LIC. Following the allotment of shares, insurance company's shareholding will rise from the current 12.91 percent.
Post allotment shareholding of LIC including its various schemes will not exceed 14.25 percent of the total post allotment paid up capital of the bank.Central Bank of India notification
The bank, which is still to report earnings for the September quarter, reported a net loss of Rs 1,418 crore in financial year 2015-16 due to an increase in bad loans. The bank also reported a loss of Rs 599.81 crore in the June ended quarter.
Bad loans have surged to nearly 14 percent of all loans, requiring the lender to make hefty provisions. This has also weighed on the bank's capital adequacy ratio which was at 9.91 percent as per Basel-III rules. Banks need to maintain a minimum capital adequacy ratio of 9 percent under these rules.
Other banks, too, have resorted to raising funds from LIC as the funds committed by the government are seen as inadequate.
In October, UCO Bank raised Rs 270 crore through a preferential issue to LIC. In March this year, IDBI Bank raised Rs 848 crore from LIC through a preferential allotment of more than 7 percent equity stake. The insurer now holds 14.37 percent in IDBI Bank.
The government has committed to pumping in Rs 70,000 crore into government banks over a four-year period. This includes a Rs 25,000 crore infusion in fiscal 2015-16 and fiscal 2016-17 respectively and another Rs 10,000 crore each in fiscal 2018 and fiscal 2019. Rating agencies, however, anticipate a far larger need for capital. Fitch anticipates that banks will need $90 billion in capital by fiscal 2018-19.
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