Union Bank Rs 250 Crore Float Plan Put On Ice

The Union Bank has deferred its Rs 250 crore initial public offer (IPO), which was scheduled to hit the markets in September, 2001, to next year.

"We had planned to come out with the IPO in September. But, because of gloomy market scene, we have decided to put off the issue for the time being", said M Venugopalan, executive director of the bank.

He said, the bank was aiming for a premium on its issue. But it was not possible in the present scenario. "Hence, the postponement".

Venugopalan said the IPO was planned to dilute the government stake in the bank. The government now holds the entire Rs 338 crore equity of the bank. After the IPO, its holding would have come down to about 70 per cent. The ultimate aim was to bring it down to 33 per cent.

Meanwhile, in the absence of the IPO, to meet its capital investment needs, the bank mobilised Rs 100 crore Tier-II capital through private placement of bonds on August 20. The bank had raised Rs 100 crore Tier-II capital in February, this year.

The Union Bank, at present, has a capital adequacy ratio of 11 per cent against the required norm of nine per cent. Venugopalan said, after taking care the asset growth planned for this year, the capital adequacy will still be 10 per cent at the year end.

Venugopalan said, the bank has identified three areas for future focus. They are business growth, asset portfolio management and operational efficiency. To achieve the targeted 20 per cent growth this year, emphasis is being laid on fee-based income and cash management system.

He said, a number of innovative products are lined up. In its attempt to retail life and non-life insurance products through its network of branches, the bank is in talks with a number of private and public held insurance companies. They include LIC, HDFC, Tata-AIG, ICICI-Prudential etc.

"We are waiting for necessary changes in the Insurance Regulation Act in the Parliament before making our foray into this area", he said.

Similarly, there is a proposal to go for a floating interest rate deposit scheme, where interest rates could be linked to the bank rate. He said, currently a survey is on to assess the demand for such scheme.

Stating that there is now stress on asset liability management, he said for efficient risk management, the bank intends to enter into interest rate swaps which are prevalent among the foreign banks.

He said the bank has embarked upon core banking solution on a centralised database as a long-term IT strategy to improve its functioning. The project is being implemented at a cost of Rs 200 crore. The bank aims to link 500 branches in the country through the computer network in next three years.