Bank of India Wishes to Reduce Government Stake to 75%

Bank of India is seeking to reduce the Government of India’s stake in its holdings to 75% as per SEBI’s advice. BoI’s CEO and Managing Director, Atanu Kumar Das, relayed this news to Business Standard at the start of September. The bank wishes to pursue this course of action so that it can have adequate independent directors on its board.

Moreover, it also hopes to start lending to BBB corporates with a good payment record. While these loans may be riskier, the bank has sufficient capital to absorb this risk. This scenario has arisen because the CAR has increased to 16% after the August QIP.

Key Points of Bank of India’s Move to Reduce Government Stake

• Bank of India issued a QIP (qualified institutional placement) in August 2021. It raised Rs. 2,550 crore from there.
• However, it is considering a follow-on public issue for the next year, that is, 2022.  Here, it hopes to raise enough capital to support growth in lending for Financial Year 2023 and beyond.
• Acquiring this fund will reduce the Government’s stake to 75%, consistent with SEBI’s advice.
• This move, undertaken to reduce Indian Government’s stake, was carried out to add more independent directors to its board.

Once the Bank of India gains this QIP amount, the Government’s stake will reduce from 90% down to 81%. The bank, however, is looking to reduce the Government’s stake further to 75% since SEBI (Securities and Exchange Board of India) had advised the bank to do the same.

Bank of India’s Capital Adequacy Ratio and New Lending

Moreover, the Bank of India’s capital adequacy ratio was 15.07%. This number is as of 30 June 2021. Therefore, it also implies that this bank has more than the required 10.88% CAR. Moreover, it means they can absorb more risk by lending to BBB category companies with a good repayment track record.

After this QIP in August, the CAR rose up to 16%. Further, the CEO said that agriculture, retail and MSME (RAM) were helping to expand credit but not providing critical mass.

Bottom Line

Bank of India seeks to accomplish two goals. One is, integrate independent directors into its board by reducing the Government’s stake. The second is to provide loans to BBB category corporate companies in the hope of receiving interest. The Bank of India is well cushioned to absorb the risk these companies pose.

Frequently Asked Questions

1. What is Capital Adequacy Ratio?

This ratio expresses the amount of available capital as a percent of the bank’s risk-weighted credit exposures (loans, etc.). Thus, it implies the capacity of the bank to absorb risk when lending.

2. What is a qualified institutional placement?

QIP is a way by which one can raise capital without any regulation compliance. Indian listed companies can make use of this method to raise money without prior intimation to market regulators.

3. How much stake does the Government currently have in the Bank of India?

Currently, in 2021, the Government holds a 90.34% stake in the Bank of India.