UBI banking on govt for capital infusion

Unlikely to raise money from market now

United Bank of India (UBI) is unlikely to test investors’ appetite in the current uncertain economic environment and will  depend on the government to meet its capital requirements, people familiar with the development told Business Standard.

“At this juncture, our entire focus is on credit recovery. We want to improve our financials before raising money from the market. Also, the current economic and market conditions are not conducive to fund-raising,” a board member of the bank said, requesting anonymity.

On Monday, the bank said it hoped to receive Rs 800 crore from the government as capital. “The board of directors has accorded its approval to create, offer, issue and allot 80,000 perpetual non-cumulative preference shares (PNCPS) of Rs 100,000 each into such a number of equity shares of Rs 10 each on a preferential basis to the government, in one or more tranches,” the lender said in a notice to BSE.

While the capital infusion is subject to approvals from various regulators and the central government, the bank’s shares gained 14 per cent in intra-day trade on Monday, before ending the day six per cent higher. News reports claiming the bank was likely to be merged with Union Bank of India also added to the rally. However, the bank later clarified there was no such proposal.

A few days earlier, the bank had informed stock exchanges it was planning to raise Tier-I capital of up to Rs 1,000 crore and considering issuing unsecured perpetual Basel-III-compliant bonds, PNCPS or equity shares. A senior bank executive said, “Probably, this isn’t a good time to approach investors for money. We are hoping for support from the government to help us improve our capital adequacy ratio.”

As of December 2013, UBI’s capital adequacy ratio stood at 9.01 per cent (according to Basel-III norms). Its Tier-I capital adequacy ratio was 5.59 per cent. From March this year, banks will have to maintain a Tier-I capital adequacy ratio of at least 6.5 per cent.