Silkbank announced that it would inject Rs7 billion to raise the paid-up capital through issuance of right shares, but one of the leading partners in the consortium which bought the bank, once again refused to purchase the right shares. The board of directors of the Silkbank approved to issue 2.8 billion right shares at the rate of Rs3.11 per share to inject additional Rs7 billion into the bank. The board has issued the right shares at the much discounted rate of Rs3.11 which needs approval from the Regulator, the State Bank.

On March 31, 2008, a consortium, comprising IFC, Bank Muscat, Nomura International and Sinthos Capital and led by senior bankers Shaukat Tarin and Sadeq Sayeed, acquired 86.55 per cent stake in the Silkbank for around $213 million or $0.47 per share (Rs29.3 equivalent per share).

The discounted price of right shares, which is several times lower than the original price it got from the consortium, shows the bad health of the bank which made effort to merge with other banks, like Atlas Bank, but the effort could not succeed.

Banking sources said the earlier meetings of the partners of the consortium to raise additional capital failed and the Bank Muscat refused to inject more liquidity.

'The Bank Muscat is still shareholder of the bank but will not buy the rights shares being issued now,' said Tariq Sabzwari, head of Media Management.

Banking in Pakistan has been facing tough times for the last couple of years and small banks especially were in a difficult situation as raising capital became the toughest task for them. Only last month Atlas Bank was sold due to capital problem. A number of small banks got extension from the State Bank to meet the paid-up capital requirement while the State Bank also softened its conditions by reducing the amount of paid-up capital.

The Silkbank also got one year extension to meet the paid-up capital and the extension would be ended on 31st of this month. Before this deadline, the Silkbank succeeded to get approval from its board for Rs7 billion right shares.

'This issuance will exceed the State Bank of Pakistan's minimum capital requirement of Rs6 billion. The decision will ensure that the bank is adequately capitalised until the end of 2010,' said a statement issued by the Silkbank.

The capital injection by a further Rs7 billion will provide Silkbank adequate room for future growth, it said adding that the bank aims at introducing a host of innovative products and services moving it closer towards a leadership role in the banking industry.

Banking sources said the Silkbank might see a change of management. They said higher expenses have attracted attention of the sponsors of the consortium and there was a demand for change of management.

'I believe that the Board of the Silkbank approved right shares issuance after getting some assurance for change in the top management,' said a senior banker having close link with the bank.