Muted response to UBI's employee-share purchase scheme; Rs 320 mn raised

United Bank of India (UBI), which recently closed its employee share purchase scheme (ESPS), got a muted response, as the issue was subscribed by about 65 per cent of the employees.

The bank could raise nearly Rs 320 million from the issue, according to Pawan Bajaj, managing director and chief executive officer, UBI. The bank was expecting to raise close to Rs 500 million from 

the issue.

A part of the officers’ union and workman union abstained from the issue.  

The bank had offered a discount of 5 per cent on the market price, and the issue was priced at about Rs 10.55.

Earlier this year, another public sector lender, Allahabad Bank, had also gone for ESPS. Allahabad Bank had issued shares price at Rs 53.94, which was at a 25 per cent discount, compared to the prevailing price of Rs 70.60 per share. The issue was subscribed by about 80 per cent employees, including officers and other staff. The bank had aimed to raise about Rs 2.80 billion from the issue, but it could manage only about Rs 2.40 billion.

Some of the other banks which have been seeking to raise money through ESPS include Punjab National Bank and Canara Bank.

ESPS shares are different from the stock option scheme. Under ESPS, shares are offered upfront. Under the employee stock ownership plan (ESOP), rights are granted to employees to acquire shares at a pre-agreed price, subject to the vesting period.

About two and half years ago, State Bank of India had mooted the idea of issuing stock options to its employees, but the government didn’t approve of it, said an official.  

 In March 2017, the finance ministry had agreed in principle to allow public sector banks (PSBs) to offer stock options to their employees from 2018-19.

“We oppose any kind of privatisation, and hence, we were never in favour of ESPS, although many PSBs are going for it,” said Rajen Nagar, president, All India Bank Employees Association.

One of the motives behind the issuance of stock options has been to incentivise employees with a better pay package. 

Vinod Rai, chief of Banks Board Bureau, had said that the compensation packages of officials in the state-run banks may be overhauled, and that they might be provided with more flexible variable components, including bonuses, ESOPs, and performance-linked packages.