Ahead of merger, Allahabad Bank has approved a capital infusion of Rs 2153 crore in the bank by way of preferential issue of shares to the government.
Notably, earlier this financial year, the government had infused about Rs 6896 crore in the bank. The second tranche of capital is for meeting regulatory capital norms, according to a senior official of Allahabad Bank.
At the end of Q3 of this financial year, the CAR of the bank stood at 10.92 per cent, while the CET1 ratio stood at 8.05 per cent. The Reserve Bank of India mandates banks to maintain a CAR of at least 9 per cent.
According to a senior official of the bank, to beef up the capital, Allahabad Bank might also partially exit stake at its insurance joint venture, Universal Sompo General Insurance Company before the merger. The company is a joint venture between public sector banks, Allahabad Bank and Indian Overseas Bank (IOB), along with Karnataka Bank, Dabur Investment Corporation, and Sompo Japan Nipponkoa Insurance (a wholly owned subsidiary of Japan’s Sompo Holdings).
At present, Allahabad Bank holds 28.52 per cent, while IOB holds an 18.06 per cent stake in the company. Karnataka Bank earlier sold a part of its stake to Dabur and Sompo Japan Nipponkoa. After the deal, Karnataka Bank’s stake in the JV dropped to 6 per cent, from the earlier 14.26 per cent. Sompo Japan’s stake increased to 34.61 per cent, from the earlier 28.42 per cent. Similarly, Dabur Investment Corporation’s stake also increased to 12.81 per cent, from the earlier 10.74 per cent.
Under the mega merger plan by Union Finance Minister Nirmala Sitharaman, 10 public sector banks would be consolidated into four. Punjab National Bank, Oriental Bank of Commerce and United Bank of India will combine to form the nation’s second-largest lender; Canara Bank and Syndicate Bank will merge; Union Bank of India will amalgamate with Andhra Bank and Corporation Bank; and Indian Bank will merge with Allahabad Bank.