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BoB cash chase to meet Basel norms

Calcutta/Mumbai, Dec. 25: Bank of Baroda (BoB), the public sector bank, is planning to raise Rs 2,500 crore to meet its capital requirements arising from the implementation of Basel II norms. The Reserve Bank of India has told domestic banks, who have overseas branches, to meet the Basel II norms by March 31, 2008.

Under Basel II, banks would have to provide for minimum 9 per cent net-owned capital against market risks, operational risks and credit risks.

Though the average capital adequacy ratio of banks in India at present is around 12 per cent, it is expected to come down by 2 to 3 percentage points once adjusted against operational and market risks under Basel II.

A compulsory credit rating of borrowers above the threshold credit limit of Rs 5 crore is expected to bring down banks’ capital requirements for credit risks.

Many banks are planning to raise resources next year to meet their enhanced capital requirements.

The State Bank of India, the country’s largest public sector commercial bank, and private sector Federal Bank have decided to raise their equity capital through a rights issue to existing shareholders.

The Union Bank of India and Syndicate Bank are also looking at the possibility of making a rights issue.

Others are going in for Tier I perpetual bonds.

Though BoB officials were not available for comments, it is understood that the nationalised bank was planning to issue a combination of perpetual and Tier II bonds.

Bank of India is another public sector bank planning to raise capital after mobilising Rs 100 crore through perpetual bonds in September this year.

Last week Dena Bank raised Rs 125 crore by way of hybrid bonds to augment its long-term resources and meet its future capital adequacy requirements.

The bonds were issued on a private placement basis and carried an interest rate of 10.05 per cent, payable annually.

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