Allahabad Bank, which came out of the prompt corrective action (PCA) framework of the Reserve Bank of India last month, said on Friday it is looking to raise around Rs 300 crore capital through dilution of its equity stake in Universal Sompo General Insurance Company, which is a joint venture of the lender, in the next fiscal to boost business growth.
“We are looking at a value maximization from stake dilution in Universal Sompo and let us see how much we can leverage. We are looking at anything around Rs 200-300 crore from this dilution. To what extent we will dilute the stake depends on the valuation we get and the necessity to go at that point of time. Even after capital infusion from the government we still need growth capital,” SS Mallikarjuna Rao, MD and CEO of Allahabad Bank, told reporters here.
“A consultant, Choice Capital, has already been appointed for the valuation of Universal Sompo. Work is in progress as it depends on the final figures in March to reach the valuation,” Rao said.
He said with the government infusing a capital of `6,896 crore into the bank, by the end of March quarter this fiscal, the lender would be able to bring down its net NPA percentage below 6%, complying with CRAR and CET-1 requirements. The bank expects it would be in a position to reach break-even by June this year.
In addition to mop up capital from the proposed equity stake dilution in its insurance JV, the bank is also planning to raise around Rs 300 crore next fiscal through sale of non-core assets like lands and properties. “Taken out of PCA, if you are planning for growth till the year 2019-20 we need the capital,” Rao said. The lender plans 8-10% year-on-year credit growth in FY20.
Universal Sompo General Insurance Company chairman ON Singh said like Allahabad Bank, Indian Overseas Bank, also a promoter of the Mumbai-based general insurer, was looking for stake dilution. According to the Allahabad Bank’s annual report for 2017-18, the Kolkata-based lender holds 28.52% equity stake in Universal Sompo along with Indian Overseas Bank, Karnataka Bank, Dabur Investment and Japanese insurance major Sompo Japan Nipponkoa Insurance.
Karnataka Bank already diluted its stake in the company to around 6% from 14.26% last fiscal, Singh said.
To a question, Rao said coming out of PCA was going to be a starting point for Allahabad Bank as it was reinforcing the lender’s responsibility to take it forward in terms on the performance of the bank. “The only advantage of PCA being lifted is the entire workforce’s enthusiasm is rejuvenated,” he said.
Allahabad Bank on Friday launched an online platform across its branches to issue health insurance policy provided by Universal Sompo General Insurance. A co-branded health insurance product, Allahabad Bank Health Care Plus (ABHCP), is exclusively designed by the insurance company.