Union Bank, Bank of India unhappy over being left out of equity infusion

Over the last weekend, the govt announced its decision to infuse Rs 6,990 cr in nine efficient public sector banks

Peeved with the government’s decision to infuse equity in only nine banks, two Mumbai-based public sector lenders — Bank of India (BoI) and Union Bank of India — have conveyed their unhappiness to the Union finance ministry over being kept out of the list.

Over the past weekend, the government announced its decision to infuse Rs 6,990 crore in nine efficient public sector banks. It used two criteria — return on assets (RoA) and return on equity (RoE) — to decide which bank will be eligible get capital from the government.

The government had allocated Rs 11,000 crore for investment in equity of public sector banks in 2014-15.

The banks want transition time to improve performance on key parameters — RoA and RoE, as most of them are reeling under credit costs — the money set aside for non-performing assets (NPAs).

Confirming  their dialogue with the finance ministry over the issue , a senior executive of Union Bank said, “The top management has held discussions with the finance ministry early this week.” He, however, refused to divulge details.

The official added it (the equity infusion) does not seem to be a well thought out action. “All banks should not be painted with the same brush.”

Another Mumbai-based lender, IDBI Bank, is internally discussing its strategy to present its case. Its net profit for the third quarter was flat at Rs 102 crore. Its capital adequacy ratio was 12.23 per cent with tier-I of 8.29 per cent.

“The intent to use efficiency norms to allocate capital is good. But the decision can’t be a knee-jerk action,” an IDBI executive said.

All three banks — Union Bank, BoI and IDBI Bank — are facing asset quality pressures due to an economic slowdown. They have substantial exposure to vulnerable sectors, including infrastructure, construction, and iron and steel.

Union Bank’s net profit for the third quarter fell by 13.2 per cent to Rs 302 crore from Rs 348 crore in the same quarter the previous year.

Its capital adequacy stood at 10.3 per cent with tier-I cities at 7.32 per cent.

Senior executives with all the three banks said there was no communication from the finance ministry to them.

“Bank chiefs only got to know from the press release. This is hardly a way to inform,” said one of them

A BoI executive said, “This stance could be explained beforehand so that banks can work out plans. Plus, the transition period (phased rollout) was necessary because the profitability is under pressure now.”

BoI is slated to announce its results for the third quarter on Thursday. Its capital adequacy ratio was 10.97 per cent with tier-I pegged at 7.97 per cent at the end of September 2014.