Kumbakonam-based Ci­ty Union Bank (CUB) is awaiting RBIs new guidelines on banking licenses to emerge, before deciding on its Rs 300 crore QIP issue. The ba­nk, which has no promoters and is only held by financial institutions such as LIC and L&T among others, wa­nts to ensure that new investors would be interested in a long-term relationship with the bank.

RBI’s guidelines manda­te that individual promoters could not hold more than 5 per cent stake in a bank and for group promoters, it was 10 per cent. The largest sha­reholders of CUB at present are LIC (4.9 per cent), L&T Capital (4.76 per cent), FMV of Netherlands (4.6 per cent) and Argonaut Ventures (4.3 per cent).

“We have acquired sha­reholder approval to raise up to Rs 300 crore for our expansion activity. We wou­ld wait for the RBI to spell out its new guidelines on banking to see if it would permit higher shareholding by the existing shareholders,” said S Balasubramanian, MD and CEO, CUB.

The bank planned to invest about Rs 1,000 crore in three years for its branch expansion activity. About Rs 600-700 crore would be raised through internal accruals, considering the bank’s profitability over the past few years. For the remaining funds the bank would look at options such as rights issue or QIP issue or a combination of both, he said. With a high tier I capital adequacy ratio of 12.50 per cent the bank had enough leverage to raise tier I capital, he said.

The bank largely caters to the SME sector, which constitutes 70 per cent of its total loan portfolio, followed by gold loans, which contributes 10 per cent, agricultural loans at about 6-7 per cent and consumer loans contributing the rest.