UCO Bank needs Rs 14,000 cr capital to meet Basel III

The bank has decided to cut its foreign presence and lend more to retail and SME sectors to preserve capital

State-run UCO Bank needs close to Rs 14,000 crore over the next five years to meet the new Basel III capital norms, its chairman and managing director Arun Kaul told the bank's shareholders here today. The bank has also decided to cut its foreign presence and lend more to retail and SME sectors to preserve capital.

"In terms of Basel III we have assessed our capital requirement for next five years to be around Rs 14,000 crore. We are looking at various options to raise funds. In addition, we are focusing on lending to retail, SME and farm sectors where the capital to risk-weight is lower," Kaul said in the bank's ninth annual shareholders' meet.

The bank has  closed its representative offices in China and Malaysia in 2011-12. "We were not getting permission to open branches there. Hence, the opportunity was not very large while the capital adequacy requirement was extremely strict," Kaul said.

UCO Bank closed last financial year with a capital adequacy ratio of 12.35%, of which tier I ratio was 8.09%. In 2010-11, the Kolkata-based lender's capital adequacy ratio was 13.80%.

As per Basel III norms Indian banks need to maintain a minimum capital adequacy ratio of 9% in addition to a capital conservation buffer, which will be in the form of common equity at 2.5% of the risk-weighted assets.

In other words, banks' minimum capital adequacy ratio must be 11.5% as per Basel III norms. Indian banks are currently required to have a capital adequacy ratio of at least 9%.

The Reserve Bank of India (RBI) has also said that the common equity in tier I capital must be 5.5% of risk-weighted assets and the minimum tier I capital adequacy ratio must be 7% instead of 6%. The new rules will come into effect from January, 2013 and banks will have to implement them by March, 2018.

For 2012-13, UCO Bank aims to have more than Rs 3 lakh crore of business and a network of 2,500 branches. The bank's total business was Rs 2.72 lakh crore while it had 2,390 branches in India as on March-end.