CSBL is the second private sector bank from Kerala to seek the central bank's nod for expanding its tier-II capital. Earlier, the Kochi-based Federal Bank Ltd had mopped up Rs 150 crore from the market by floating a 66-month paper carrying a coupon rate of 14.4 per cent.

Top sources in CSBL told The Financial Express that the bank will hit the debt market with a Rs 20-crore issue once it gets the green light from the Reserve Bank of India. The 63-month paper will carry a coupon rate of 14.50 per cent, he added. He said the bank has already sought necessary permission from the RBI to float the bond. The RBI clearance is expected soon, he added.

Bank sources said that CSBL has torestrict the issue size to Rs 20 crore as per the RBI guidelines. The bank could have gone for a larger issue if its tier-I capital was bigger. Under the RBI restriction, tier-II capital should be restricted to 50 per cent of the tier-I capital. Sources said the post-debt issue capital adequacy level of the bank should go up to a shade over 7 per cent.

CSBL has recently gone for a truncated rights issue of 49.5 lakh equity shares of Rs 10 each with a premium of Rs 22 to its existing shareholders. The 2:3 issue is expected to mop up Rs 16 crore. The issue was reportedly oversubscribed. The bank had to set 40 per cent of the original issue size of Rs 26 crore in abeyance following the RBI order. The RBI has asked the bank to keep 40 per cent of the issue in abeyance till the polemical share transfer issue to the Thailand-based Siam Vidya group was settled.

Sources, however, said the bank may not achieve the projected 7 per cent capital adequacy level if the share transfer issue was not resolved before theend of the current financial year. This may land CSBL in deep trouble as it could not expand its business, they pointed out.

CSBL management has been in a bind for some time as the bank's business has been growing rapidly over the past two years despite the lower capital adequacy level. The bank's net profit had zoomed by over 77 per cent during the last financial year to Rs 7.09 crore. Deposits had gone up by 21 per cent to Rs 1,848.65 crore for the year compared with Rs 1,528 crore in the previous year. However, the growth in advances was sluggish during the period as the bank was soft-peddling credit growth following a low capital adequacy ratio. The bank's total credit stood at Rs 1,010.36 crore during the period ended March 31, 1998. The bank has transferred Rs 6.34 crore of various reserves for increasing the networth to Rs 34.84 crore from Rs 28.66 crore in the previous year. CSBL had to scale down its dividend payout to 12 per cent last year from the 15 per cent proposed at the RBI's behestfollowing lower capital base.

It may be recalled that the Thrissur-based private sector bank had hit the headlines when the Thailand-based Siam Vidya Group in a takeover bid acquired 19.62 lakh shares accounting for 36.23 per cent of the bank in early 1994. Chawlas, after getting the necessary clearance from the ministry of finance and foreign investment promotion board, had lodged the shares with the bank for transferring them into their name in 1997.