Litigation-prone Canara Bank comes out with Rs 385-cr IPO
Venkatachari Jagannathan
18 November 2002

Chennai: Canara Bank’s Rs 385-crore-premium public issue prospectus will be the one that devotes more pages towards pending litigations fought by the bank compared to two other nationalised banks (Union Bank of India and Allahabad Bank) that hit the markets recently.

As per its prospectus, Canara Bank, as of 31 March 2002, is fighting 1,220 cases. The numbers for Union Bank of India and Allahabad Bank are 1,002 and 707, respectively. Canara Bank is contesting claims of over Rs 270 crore and in many cases necessary provisions has not been made.

When queried about the investor-friendliness of Canara Bank, given the track record of its subsidiaries like the mutual fund outfit that first turned around on its issue promises, Canara Bank chairman and managing director R V Shastri says: “All those things are over. We are now starting on a clean slate.”

The bank’s public offering (the issue of 11-crore equity shares of Rs 10 each at a premium of Rs 25 per share) opened on 18 November 2002, and is basically for the purpose of shoring its long-term capital needs.

The bank’s capital adequacy ratio (CAR) now stands at 11.88 per cent. The increase in the tier-I capital through retained earnings alone may not be enough to enable the bank to maintain a sufficient CAR in the future. The bank’s tier-I portion of the capital has come down in the recent years.

Post-issue, the equity base will go up to Rs 410 crore and the holding of the Indian government will come down to 73.17 per cent. According to Shastri, investors have an option to subscribe to the shares at a discount of 58 per cent to the net asset value of the share.

In the last financial year, Canara Bank increased its business by Rs 10,255 crore to Rs 97,156 crore (deposits: Rs 64,030 crore; advances: Rs 33,126 crore). The income from advances improved to Rs 3,130.48 crore and the investments income saw an increase of Rs 262 crore to Rs 2,496.71 crore on a total portfolio of Rs 23, 220.10 crore.

The operating profit was Rs 1,656 crore and the net profit zoomed to Rs 741 crore from 285 crore clocked during the financial year 2001.

Agreeing that the net profit went up due to profits in treasury-trading operations — a common phenomenon for all the banks last year — Shastri feels such an opportunity still exists for banks. “The quantum of treasury-trading profits will come down and certainly it will not vanish. We are seeing such trends this year.”

The bank’s non-performing assets (NPAs) stand at Rs 1,288.39 crore (3.89 per cent of the net advances) and Shastri says it is the lowest in the domestic banking sector. “The NPA coverage is 63.73 per cent.”

Like all others in the banking industry Canara Bank is also looking at the retail segment seriously. The bank, apart from targeting the housing loan, credit card market and others, is also getting into insurance distribution by signing an agreement with Aviva Life Insurance. “Retail lending accounts for 12 per cent of our loan portfolio. This year, Internet-banking facility will be introduced,” says Shastri.

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