Order in the matter of Indian Overseas Bank

WTM/PS/67/CFD-DCR-1/DEC/2013 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER In the matter of proposed acquisition of equity shares of Indian Overseas Bank - Application filed under regulation 11(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

1. Indian Overseas Bank (hereinafter referred to as "the Target Company" or "the Bank") is a public sector bank, having its registered office at Central Office, 763, Anna Salai, Chennai – 600 002. The shares of the Bank are listed on the Bombay Stock Exchange Limited ("BSE") and the National Stock Exchange of India Limited ("NSE").

2. The Target Company filed an application dated November 08, 2013 with the Securities and Exchange Board of India (hereinafter referred to as "the SEBI"), on behalf of its promoter, the Government of India (hereinafter referred to as "the GoI"), under regulation 11(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as "the Takeover Regulations"), seeking exemption for the GoI from the applicability of regulation 3(2) of the Takeover Regulations in respect of its proposed acquisition of 22,97,53,015 shares. Thereafter, vide letter dated November 18, 2013, the Target Company submitted amended application and certain details in support of the application. The application and the letter inter alia stated the following :

(i) The authorised capital of the Bank is ₹3,000 crore and the paid-up capital is ₹924.10 crore. (ii) The GoI is holding 68,19,57,833 shares i.e. 73.80% of the equity share capital of the Bank. (iii) GoI desires that all public sector banks should maintain minimum 8% Tier I Capital to Risk-weighted Assets Ratio (CRAR). As on March 31, 2013, the Bank's Tier I CRAR under Basel II was 7.80% and the Total CRAR was 11.85% as per Basel II. (iv) On September 30, 2013, the Bank's Tier I CRAR as per Basel III norms was 7.02% while the Total CRAR was 10.66%. With probable increase in the risk weighted assets as on March 31, 2014, the Bank is away from reaching the desired 8% Tier I CRAR and requires capital infusion. (v) As in every year this year too, the GoI has made a budgetary allocation of ₹14,000 crore for infusion of capital in various Public Sector Bank.

(vi) Pursuant to the aforesaid, the GoI through the Ministry of Finance, vide letter dated October 22, 2013, has advised infusion of capital to the tune of ₹1200 crore in the Target Company as preferential equity in favour of the GoI. (vii) As the difference between the post-allotment and pre-allotment shareholding of the GoI in the Bank may be over 5%, the GoI vide letter dated October 31, 2013 has advised the Bank to seek exemption (from SEBI) from the obligation of making an open offer under the Takeover Regulations. (viii) The Board of Directors of the Bank, in their meeting held on November 11, 2013, approved raising of additional equity capital to the extent of ₹1,200 crore by way of issue of equity shares in favour of the GoI on preferential basis subject to the approval of the Reserve Bank of India ("RBI"), the shareholders and other statutory authorities. Extra- Ordinary General Meeting ("EGM") of the shareholders will be convened on December 16, 2013 to pass the necessary resolution for the proposed issue of the equity shares to the GoI on preferential basis. (ix) The entire process of raising capital by way of preferential allotment must be completed on or before December 30, 2013 in order to improve CRAR as on March 31, 2014 factoring the effect of additional capital to be infused by GoI through the preferential issue. (x) The relevant date has been taken as November 14, 2013 for ascertaining the issue price to arrive at the quantity of shares to be issued. The issue price has been fixed at ₹52.23 per equity share (including a premium of ₹42.23), which is calculated as per regulation 76(1) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 ("the ICDR Regulations"). Based on the issue price and the issue size of ₹1,200 crore, the total number of shares offered to GoI is 22,97,53,015 equity shares. Accordingly, the post issue shareholding of the GoI would be 91,17,10,848 equity shares (i.e. 79.01%). (xi) The entire infusion of capital by GoI is being made to comply with Basel III requirements and there would be no change in control in the management of the Bank. (xii) As the proposed acquisition of shares would increase the shareholding of GoI by more than 5% during the financial year 2013-2014, exemption has been sought from the applicability of regulation 3(2) of the Takeover Regulations.

3. I have considered the application of the Target Company, the documents attached thereto and other material available on record.

4. The GoI (a shareholder of the Target Company under the category 'Promoter and Promoter Group'), which is the proposed acquirer, presently holds 68,19,57,833 shares in the Target Company, which constitutes 73.80% of the total number (92,40,95,300 shares) of equity shares. The Target Company has submitted that the GoI desires that all public sector banks should maintain a minimum of 8% Tier I CRAR. It is submitted that the Target Company is away from achieving the 8% Tier I CRAR and requires capital infusion in view of the increase in the risk weighted assets as on March 31, 2014.

5. I note from the letter dated October 22, 2013 (letter from the Ministry of Finance, GoI to the Target Company) that the GoI has decided to infuse capital to the tune of ₹1200 crores in the Target Company by way of preferential allotment of equity in favour of the GoI. The Target Company has submitted that, pursuant to the said decision of the GoI, its Board of Directors, in the meeting held on November 11, 2013, had approved raising of additional equity capital to the extent of ₹1200 crore through the issue of equity shares in favour of GoI on preferential basis subject to the approval of RBI, the shareholders and other statutory authorities.

6. I note from the application and the subsequent correspondence that the Target Company has fixed the 'relevant date' on November 14, 2013 as the EGM is being convened on December 16, 2013 for obtaining the shareholders' approval for the proposed allotment to the GoI. I note that the issue price has been fixed at ₹52.23 per equity share of ₹10 each as per regulation 76(1) of the ICDR Regulations, taking into consideration November 14, 2013 as the 'relevant date'. Accordingly, the Target Company has proposed to allot 22,97,53,015 fresh equity shares to the GoI on preferential basis. The proposed allotment of 22,97,53,015 equity shares of the Target Company to the GoI would increase the shareholding of the GoI (in the Target Company) from 73.80% to 79.01%. This resultant increase in the shareholding/voting rights of the GoI would be around 5.31%, which would trigger the provisions of regulation 3(2) of the Takeover Regulations. Accordingly, the Target Company on behalf of GoI, has sought exemption from the applicability of the said regulation.

7. The shareholding pattern in the Target Company as mentioned in the application and the shareholding pattern post the proposed preferential allotment to the GoI, is given in the table below: Shareholding pattern in the Target Company Category Before the proposed issue Post issue of equity through of equity proposed preferential issue to GoI No. of shares Percentage No. of shares Percentage Promoter Group 68,19,57,833 73.80% 91,17,10,848 79.01% (GoI) FIs/banks 10,62,91,692 11.50% 10,62,91,692 9.21% FIIs/NRIs/OCB 2,75,36,951 2.99% 2,75,36,951 2.39%

Public 10,83,08,824 11.71% 10,83,08,824 9.39% Total 92,40,95,300 100% 1,15,38,48,315 100% 8. I note that the infusion of funds by the GoI would enable the Target Company to achieve the 8% Tier I CRAR in accordance with the Basel III guidelines. Higher CRAR represents that a bank or a financial institution has sufficient capital in order to keep it out of financial difficulty and protect the interest of its depositors and in turn the economy. Even after the proposed increase in the shareholding of GoI in the Target Company pursuant to the proposed preferential allotment, the minimum public shareholding as stipulated in rule 19A(3) of the Securities Contracts (Regulation) Rules, 1957, would be maintained and there would be no change in the management control in the Target Company.

9. Considering the proposed allotment of equity shares to the GoI in the light of the reasons stated by the Target Company and the observations made above, I am of the considered view that this is a fit case to grant exemption under regulation 11 of the Takeover Regulations to the GoI from the obligation to make an open offer under regulation 3(2) of the Takeover Regulations with respect to its proposed increase of shares/ voting rights from 73.80% to 79.01%, pursuant to proposed preferential issue and allotment of 22,97,53,015 equity shares to the GoI.

10. In view of the foregoing, I, in exercise of the powers conferred upon me under section 19 of the Securities and Exchange Board of India Act, 1992 read with regulation 11(5) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, hereby grant exemption to the proposed acquirer, the Government of India, from complying with the requirements of regulation 3(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 with respect to its proposed acquisition of 22,97,53,015 shares by way of preferential allotment by the Target Company i.e., Indian Overseas Bank, against the infusion of ₹1200 crores by the GoI, which may increase the shareholding/ voting rights of the Government of India in the Target Company from 73.80% to 79.01%. The exemption is granted subject to the following conditions : (i) The proposed acquisition shall be in accordance with the relevant provisions of the Companies Act, 1956, the Companies Act, 2013, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, the Listing Agreement and all other applicable laws. (ii) The GoI/ Target Company shall ensure compliance with the statements, disclosures and undertakings made in the application.

(iii) The exemption is only limited to the requirements of making open offer under regulation 3(2) of the Takeover Regulations and shall not extend to other obligations (e.g. disclosure requirements under Chapter V of the said Takeover Regulations, Listing Agreement or any other law) of the GoI/ Target Company.

11. Accordingly, the application dated November 08, 2013 and amended application dated November 18, 2013 filed by the Government of India through the Indian Overseas Bank, is disposed off.

DATE: December 18, 2013 PRASHANT SARAN PLACE: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA