Exemption order under regulation 11 of SEBI (SAST) Regulations, 2011 in the matter of “Allahabad Bank

WTM/GM/CFD/19/2018–2019 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER UNDER SECTION 11(1) AND SECTION 11(2)(h) OF THE SEBI ACT READ WITH REGULATION 11(5) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 2011. IN THE MATTER OF PROPOSED ACQUISITION OF SHARES AND VOTING RIGHTS IN – TARGET COMPANY ALLAHABAD BANK ACQUIRER GOVERNMENT OF INDIA

BACKGROUND – 1.1 Allahabad Bank (“Target Company”) is a Scheduled Commercial Bank having its Head Office at 2, Netaji Subhas Road Kolkata – 700 001. The Target Company was incorporated on July 19, 1969. The shares of the Target Company are listed on the BSE Limited (“BSE”) and the National Stock Exchange of India Limited (“NSE”).

1.2 The Target Company filed an application dated March 23, 2018 (“Application”), on behalf of its Promoter i.e. the Government of India (“Proposed Acquirer/GOI”) seeking exemption from the applicability of Regulation 3(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”).

1.3 Regulation 3(2) of the Takeover Regulations, states – “3. Substantial acquisition of shares or voting rights.

(2). No acquirer, who together with persons acting in concert with him, has acquired and holds in accordance with these regulations shares or voting rights in a target company entitling them to exercise twenty-five per cent or more of the voting rights in the target company but less than the maximum permissible non-public shareholding, shall acquire within any financial year additional shares or voting rights in such target company entitling them to exercise more than five per cent of the voting rights, unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations:

Order in the matter of Allahabad bank

Provided that such acquirer shall not be entitled to acquire or enter into any agreement to acquire shares or voting rights exceeding such number of shares as would take the aggregate shareholding pursuant to the acquisition above the maximum permissible non-public shareholding.”

1.4 From the aforesaid Application, the following is noted –

A. Vide a letter dated January 24, 2018, Government of India (GOI) proposed an infusion of capital in the Target Company, amounting to ₹1500 Crores.

B. The aforesaid amount of ₹ 1,500 Crores will be infused through a proposed preferential allotment of 21,07,33,352 new equity shares of ₹ 10/- each in favour of the Proposed Acquirer/Promoter i.e. the Government of India (“Proposed Acquisition”).

C. At the Board Meeting of the Target Company held on February 14, 2018, the Board of Directors approved raising of additional equity capital to the extent of ₹1,500 Crores by way of issue of equity shares on a preferential basis to the Proposed Acquirer/Promoter.

D. An Extra–Ordinary General Meeting (“EGM”) of shareholders in the Target Company has been convened on March 21, 2018, for seeking approval of the Members for the proposed issue and allotment of shares to the Proposed Acquirer/Promoter by way of Special Resolution. The issue price per equity share has been arrived at ₹71.18, in accordance with Regulation 76(1) of (Issue of Capital and Disclosure Requirements) Regulations, 2009 (“ICDR Regulations”). Based on the issue size of ₹1,500 Crores and issue price of ₹71.18, the total number of equity shares to be allotted to the Proposed Acquirer/Promoter is 21, 07, 33,352 of face value ₹10 each.

E. On March 31, 2017, the Proposed Acquirer/Promoter i.e. the GOI, held 49, 02, 08,411 equity shares (65.92%) in the Target Company.

F. During the Financial Year 2017–18, Bank allotted 5, 65, 24,678 equity shares to GOI under Preferential Basis resulting in increase in shareholding of GOI from 65.92% to 68.32%. Subsequently, the bank has allotted 4,38,29,778 equity shares to eligible employees of the Bank under Allahabad Bank Employee Share Purchase Scheme and as a result the Shareholding of the GOI has come down from 68.32% to 64.78%.

G. Subsequent to the proposed acquisition i.e. preferential allotment of 21, 07, 33, 352 equity shares, the Proposed Acquirer/Promoter will hold 75, 74, 66,441 equity shares (71.81%) in the Target Company.

H. The shareholding pattern in the Target Company (i) as on March 31, 2017; (ii) prior to the proposed acquisition and (iii) subsequent to the proposed acquisition, is provided as under –

TABLE I – SHAREHOLDING IN THE TARGET COMPANY (SOURCE: APPLICATION) CATEGORY AS ON 31.03.2017 PRIOR TO SUBSEQUENT PROPOSED TO PROPOSED ALLOTMENT ALLOTMENT (AS ON 23.03.2018) NO. OF NO. OF SHARES NO. OF SHARES AND % AND % SHARES AND % A. PROMOTER AND 75,74,66,441 49, 02, 08,411 54, 67, 33,089 PROMOTER GROUP (65.92%) (64.78%) (71.81%) B. FINANCIAL INSTITUTIONS/BANKS/ FOREIGN PORTFOLIO 29,73,11,223 INVESTORS/ 25, 34, 81,445 29, 73, 11,223 NON RESIDENT (34.08%) (35.22%) (28.19%) INDIANS/OVERSEAS CORPORATE BODIES/ OTHER PUBLIC SHAREHOLDERS C. GRAND TOTAL (A + B) 74,36,89,856 84,40,44,312 105,47,77,664 [100%] [100%] [100%]

I. The resultant change in shareholding on account of the allotment indicated above, is likely to increase the concentration of the Proposed Acquirer/Promoter/Government shareholding in the Target Company by 7.03% (i.e. 64.78 % to 71.81%) during the Financial Year 2017–18 i.e. more than 5%, thereby attracting the provisions of Regulation 3(2) of the Takeover Regulations.

J. The details pertaining to the Board of Directors of the Target Company as on the date of the Application, is provided as under –

TABLE II – BOARD OF DIRECTORS OF THE TARGET COMPANY (SOURCE: APPLICATION) SR. NAME STATUS NO. 1. Smt. Usha Ananthasubramanian MD & CEO 2. Shri. N. K. Sahoo Executive Director 3. Shri. S. Harisankar Executive Director 4. Shri. Rajeev Ranjan Govt. nominee Director 5. Shri Vivek Deep RBI Nominee Director 6. Prof. Radha R. Sharma Part Time Non Official Director 7. Shri. Gautam Guha Part Time Non Official Director 8. Dr. Bijaya Kumar Sahoo Shareholder Director 9. Shri. Sarath Sura Shareholder Director 10. Shri. Parthapratim Pal Shareholder Director K. Submissions made by the Target Company on behalf of the Proposed Acquirer/Promoter for exemption from the provisions of Regulation 3(2) of the Takeover Regulations.

In its Application on behalf of the Proposed Acquirer/Promoter, the Target Company submitted as under – a. GOI vide letter dated 24.01.2018 decided to allocate funds to the tune of ₹ 1,500 Crores as growth capital in the bank. b. As per the Board approved undertaking by Allahabad Bank, the capital infusion by GOI is for supplementing the Bank’s efforts, and that the infusion of ₹ 1,500 Crore over the second half of the F.Y. 2017-18 and further capital infusion in F.Y. 2018-19 is aimed at meeting regulatory capital norms, In terms of the minimum common equity tier -1 and Tier-1 capital requirements- c. for 7.375% of Risk Weighted Assets (RWA) as on 01.04.2018 and d. for 5.75 % of RWAs as on 01.04.2019, subject to variation based on the Bank’s performance in carrying out the terms of this Undertaking to GOI’s satisfaction, assuming no growth in RWAs by 31.03.2018, over the RWAs as on 31.03.2017 or 30.09.2017, whichever are lower, and reduction in RWAs in FY 2018-19 to an RWA level of ₹ 1, 33,811 crore by March 2019. e. GOI would be acquiring 21, 07, 33, 352 equity shares of ₹ 10 each of the Bank, i.e. 7.03% of paid-up capital of the Bank in the Financial Year.

f. At the beginning of the Financial Year, GOI was holding 49, 02, 08,411 shares i.e. 65.92%, in the Bank’s equity capital. During the Financial Year 2017–18, Bank allotted 5, 65, 24,678 equity shares to GOI under Preferential Basis resulting in increase in shareholding of GOI from 65.92% to 68.32%. Subsequently, the bank has allotted 4,38,29,778 equity shares to eligible employees of the Bank under Allahabad Bank Employee Share Purchase Scheme and as a result the Shareholding of the GOI has come down from 68.32% to 64.78%. g. Post the preferential allotment, GOI’s shareholding in the Target Company will increase by 7.03% (i.e. 64.78 % to 71.81%) during the Financial Year 2017–18 i.e. more than 5%, thereby attracting the provisions of Regulation 3(2) of the Takeover Regulations.

Findings –

2.1 I have considered the Application made by the Target Company on behalf of the Proposed Acquirer/Promoter along with other relevant material available on record. In this regard, I note as under – i. From Table at page 3, it is observed that as on March 31, 2017, the Proposed Acquirer/Promoter i.e. GOI, held 49,02,08,411 (65.92%) equity shares in the Target Company.

ii. During the Financial Year 2017–18, Bank allotted 5, 65, 24,678 equity shares to GOI under Preferential Basis resulting in increase in shareholding of GOI from 65.92% to 68.32%.

iii. Subsequently, the bank has allotted 4,38,29,778 equity shares to eligible employees of the Bank under Allahabad Bank Employee Share Purchase Scheme and as a result the shareholding of the GOI has come down from 68.32% to 64.78% (approx. 5467.33 lakhs equity shares) as on March 23, 2018.

iv. The proposed acquisition i.e. preferential allotment of 21, 07, 33, 352 equity shares, the Proposed Acquirer/Promoter will hold 75, 74, 66,441 equity shares (71.81%) in the Target Company. Consequently, the public shareholding in the Target Company will decrease from 35.22 % to 28.19 %.

v. The resultant change in shareholding on account of the allotment indicated at paragraph above, will increase the concentration of the Proposed Acquirer/Promoter/ Government shareholding in the Target Company by 7.03 % during the Financial Year 2017–18 i.e. more than 5%, thereby attracting the provisions of Regulation 3(2) of the Takeover Regulations.

vi. There will be no change in control of the Target Company pursuant to the proposed acquisition as the change will only be in the quantum of shares held by the Proposed Acquirer/GOI. Further, there will be no change in the number of equity shares held in the Target Company, by the public shareholders, pursuant to the proposed transactions.

2.2 The infusion of additional capital by the Proposed Acquirer/Promoter is stated to enable the Target Company to meet regulatory capital norms and will also provide the Target Company with additional leverage for raising further equity capital at a later date, as and when the need arises. Accordingly, I am of the considered view that exemption as sought for in the Application made by the Target Company, be granted to the Proposed Acquirer/Promoter, subject to the conditions stated herein.

Order –

3.1 I, in exercise of the powers conferred upon me under Section 19 read with Section 11(1) and Section 11(2)(h) of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) and Regulation 11(5) of the Takeover Regulations, hereby grant exemption to the Proposed Acquirer, viz. the Government of India, from complying with the requirements of Regulation 3(2) of the Takeover Regulations with respect to the proposed acquisition of 7.03% equity shares in the Target Company viz. Allahabad bank during the Financial Year 2017–18, through the proposed preferential allotment as mentioned in the Application.

3.2 The exemption so granted is subject to the following conditions:

i. The proposed acquisition shall be in accordance with the relevant provisions of the Companies Act, 2013 and any other applicable law. ii. The GOI/Target Company shall ensure compliance with the statements and disclosures made in the Application. iii. The statements/ averments made or facts and figures mentioned in the Application by the Proposed Acquirer/Promoter are true and correct.

3.3 The exemption granted above is limited to the requirements of making open offer under the Takeover Regulations and shall not be construed as exemption from the disclosure requirements under Chapter V of the Takeover Regulations; compliance with the SEBI (Prohibition of Insider Trading) Regulations, 2015; Listing Agreement/SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and the SCR Rules, 1957.

3.4 The Application dated March 23, 2018, filed by Target Company on behalf of the Proposed Acquirer/Promoter, is accordingly disposed of.

3.5 A copy of this Order shall be forwarded to the recognized Stock Exchanges for their information and necessary action.

Place: Mumbai G. MAHALINGAM Date: May 18, 2018 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA