The public sector bank has also mobilised Rs 300 cr perpetual debt. | |
| Union Bank of India plans to mobilise Rs 1,400 crore capital funds through issuance of bonds over the next five months. This week, the mid-sized public sector bank also raised Rs 300 crore of perpetual debt. |
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| Union Bank has drawn up a massive capital-raising plan to maintain its capital adequacy ratio (CAR) substantially above the mandatory 9 per cent even after implementing the Basel-II capital adequacy norms. |
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| The bank requires capital funds not only to support credit growth but also to provide nearly Rs 500 crore for operational risks under the new capital adequacy norms. Basel-II requires banks to provide capital for operational risks in addition to credit and market risks. |
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| Union Bank's CAR at the end of September is likely to have fallen below 11 per cent from 11.4 per cent at the end of March this year. Its tier-I capital adequacy on March 31 was 7.32 per cent. |
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| Basel-II norms are expected to reduce the banking sector's CAR by 2 percentage points from the average CAR of over 12 per cent. |
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| The bank raised the Rs 300 crore through its maiden perpetual debt issue at a coupon rate of 9.45 per cent for the first 10 years and 9.95 per cent for all subsequent years. |
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| The Mumbai-based bank also needs resources to fund credit growth. The bank no longer has room to further liquidate its statutory liquidity ratio (SLR) investments to fund credit as the SLR ratio has fallen to 25.2 per cent, which is just above the statutory minimum of 25 per cent. |
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| The bank has limited flexibility in raising fresh equity capital as the government shareholding in the bank at 55.4 per cent is close to the floor of 51 per cent. |
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| The capital funds proposed to be raised should be able to support business growth in the next financial year (2007-08) also, a senior Union Bank of India official said. The bank had in May raised Rs 200 crore of tier-II capital. |
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| Union Bank's plans are to raise Rs 1,000 crore through upper tier-II bonds, Rs 300 crore through perpetual bonds, which qualify as tier-I capital, and Rs 400 crore through subordinated bonds. Crisil has assigned AA+stable rating to these issues. |
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| The rating agency said it expected large absolute accretion to Union Bank's net worth through retained net profits in order to enable the bank to maintain its overall capital adequacy at comfortable level over the medium term. |
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