Indian Overseas Bank (IOB), which fell short of the 8 per cent tier I capital requirement, is looking to raise a capital of Rs 2,000 crore from the government and Life Insurance Corporation of India (LIC). The bank will raise Rs 1,675 crore from the government through a preferential issue and Rs 302 crore from LIC through an equity sale, according to an announcement made by the bank on Wednesday.

The issue price of the shares will be Rs 97.82 per equity share, which is about 8 per cent lower than the closing price of the IOB shares at Rs 106.85 in the BSE on Wednesday. The board of the company in a Tuesday meeting approved the proposal to raise capital from the government and LIC.

The government will subscribe to 171.2 million shares of IOB, while LIC will be allotted 30.9 million shares and pick up 5 per cent stake in IOB in the process.

“What we have obtained is an enabling resolution. We hope that government subscribes to the entire Rs 1,675 crore. If that is through, we may not require capital from LIC this year. We may look at raising capital from LIC in April, since capital is a continuous requirement,” the IOB chaiman, M Narendra told Financial Chronicle.

IOB’s tier I capital fell to 6.68 per cent in the quarter ended December 2011, against the mandatory requirement of 8 per cent as per Basel II norms.

The number of shares to be allotted to the government and LIC and its various schemes will vary according to the capital contribution from both entities, within the amounts mentioned, the bank said in an announcement.

rsrividya@mydigitalfc.com