LIC may take up to 5% stake in Punjab & Sind Bank

The Government-owned Punjab and Sind Bank has decided to go for a preferential issue of shares to another state-run firm, Life Insurance Corporation of India (LIC).

Money realised through this issue will help the bank to strengthen Capital to Risk-weighted Assets Ratio (CRAR).

With the government being in a tight spot on the fiscal front, India's largest life insurance company is coming to the rescue of public sector banks to pump in funds to boost their Tier-I (core) capital.

After the government, LIC is the single biggest shareholder in majority of the public sector banks.

In the October- December 2011 period, India's largest life insurance company substantially upped stakes in State Bank of India, Punjab National Bank, Bank of Baroda and HDFC Bank.

Punjab & Sind Bank's share reacted positively to this news, closing with an increase of over 4 per cent to Rs 85.75. The bank, in a statement, said: “The Board of Directors of Punjab & Sind Bank has recommended preferential issue of equity shares to the LIC up to the extent of 5 per cent of the proposed total paid-up equity share capital of the Bank.”

A total of 1,12,91000 shares will be issued. Price will be decided later according to the SEBI's regulations.

The bank's CRAR came down to 12.99 per cent on December 31, 2011 from 14.13 per cent on December 31, 2010.

This ratio is an indicator of strength for lending money. The bank's credit surged to Rs 42,604 crore as on December 31 from Rs 37,806 crore a year ago showing a growth of Rs 12.69 per cent.