'We are likely to double business in next 3 years'

Q&A: SC Gupta

It took 56 years for United Bank of India (UBI) to reach a business of Rs 50,000 crore. That was in 2006. The milestone had prompted the then finance minister, P Chidambaram, to set the next Rs 50,000 crore target for the next five years. The Kolkata-based lender exceeded Chidambaram’s expectation by crossing the Rs 1 lakh-crore mark this month. Chairman and Managing Director SC Gupta tells Manojit Saha that the bank intends to raise Rs 450-500 crore through an initial public offer (IPO) while another Rs 550 crore is expected from the government, which will subscribe to its preference shares. Excerpts:

What is the status of your IPO?
On December 31, we will move Rs 1,266 crore from our capital base to a reserve account. We have sought permission from the government for issuing shares worth Rs 50 crore (face value) We are expecting the approval shortly. We would like to hit the capital market in January-February 2010. Our book value as on March 31, 2009, was Rs 14. At present, it would be around Rs 104. The premium would be decided by the investment bankers. With at least with Rs 80-90 premium, we will be able to raise Rs 400-500 crore.

For how long do you hope to sustain the bank’s growth on the back of this round of capital infusion?
We have already received Rs 250 crore from the government in the form of perpetual non-cumulative preference shares and another Rs 550 crore will come in the current financial year. These, along with the IPO proceeds, would see us though till March 2011, if not 2012. We also have a huge headroom for raising Tier-II capital. Right now, we have a comfortable capital adequacy ratio, which was 12.18 per cent on June 30.

What kind of long-term growth plans you have in mind for the bank?
We crossed the Rs 100,000-crore business mark in August, which was Rs 95,400 crore at the end of March. Between March and June, we recorded a growth of 10 per cent sequentially. Credit growth during the period was about 9 per cent. We should be doing about Rs 125,000 crore by the end of the current financial year and by March 2011, the total business should be Rs 160,000-170,000 crore. By March 2012, we should be doubling business to Rs 200,000 crore.

While growing, we have tried to ensure that we do not compromise on credit quality and keep non-performing assets under check. We are giving a lot of emphasis to credit monitoring.

But your non-performing assets (NPAs), at 1.7 per cent, are one of the highest in the industry.
Our assets directly became NPAs as no restructuring was done in the past. There was no hand-holding if small borrowers defaulted. I will not be too concerned with the net NPA but I will be certainly concerned about the gross NPA. The net NPA numbers are reflective of the ability of provisions from the profit. We will be happy if we do not cross the March 2009 figure for gross NPAs (Rs 1,020 crore). On net NPA, we aim to be at the March 2009 level (1.48 per cent) by the end of the current financial year.

Are you planning to sell bad loans to asset reconstruction companies (ARCs)?
We have already sold Rs 100 crore bad loans to ARCs. We may sell another Rs 100 crore in the current financial year if we get the right price.

The bank has one of the lowest net interest margins (NIMs) in the sector. How do you plan to improve the margins?
Our NIM is under pressure which we are trying to improve. It is close to 2 per cent and we want to take it to over 2.2 per cent by the end of March. Our current account-savings account (Casa) deposits have also come down. Casa should be our natural strength because 65 per cent of our branches are in rural and semi urban areas. We hope to keep Casa at the present level of 34-35 per cent of the total deposits in 2009-10.

UBI is mostly present in the east and north of the country. Have you any plans to increase the branch network in other parts of the country?
We are opening 123 branches this year for which RBI’s (Reserve Bank of India’s) approval has been received. A large number of branches will be opened in other parts of the country.