United Bank firms up employee share purchase plan, awaits Sebi nod

Issue expected to get support from unions of both employees and officers

After Allahabad Bank, another Kolkata-based public sector lender, United Bank of India, has firmed up plans for the employee share purchase scheme (ESPS).

The bank’s employees are expecting a steep discount at issue price, similar to Allahabad Bank’s ESPS option earlier this year. Allahabad Bank had issued shares price at Rs 53.94, which was at a 25 per cent discount compared to the prevailing price of Rs 70.60 per share. The issue was subscribed by about 80 per cent employees, including officers and other staff. The bank had aimed to raise about Rs 2.80 billion from the issue, but finally it could manage about Rs 2.40 billion, said sources.

“We will issue around 50 million shares as ESPS. We are expecting Sebi’s approval for the same in a week or two,” said Pawan Bajaj, MD and CEO, United Bank of India. Notably, United Bank of India has one of the highest government shareholding of around 93.13 per cent as on March 31, 2018.

With share price of around Rs 11 per share without discount, United Bank’s issuance would translate into around Rs 550 million. Notably, while the officers’ union at Allahabad Bank had welcomed the ESPS issuance, the staff union had opposed.

NUMBERS GAME

• Allahabad Bank raised about Rs 2.40 billion from ESPS issuance
   
• Allahabad Bank’s ESPS was subscribed by 90 per cent employees
   
• Employees of United Bank of India expect steep discount on issue
   
• Allahabad Bank had offered 25 per cent discount per share to employees
   
• United Bank of India is awaiting Sebi approval for ESPS issuance

However, due to steep discount, nearly 70 per cent of the staff and more than 90 per cent of officers had subscribed to the issue by Allahabad Bank. The ESPS issue is likely to dilute government stake by around 1.5 to 2 per cent, said sources in the bank.

The ESPS issuance by United Bank of India is expected to get support of both the employees’ and officers’ union.

“At present, banks are in need of capital, so we have taken a liberal view. For Allahabad Bank, we responded positively. However, we think that stock issuance should not be linked to performance,” said C H Venkatachalam, general secretary, All India Bank Employees’ Association, the main workmen’s association in PSBs. The officers’ union has also taken a similar view.

“We are not opposed to ESOPs, provided they are not linked to performance,” said D Thomas Franco, general secretary, All India Bank Officers’ Confederation, the principal association for officers.

ESPS shares are different from the stock option scheme, while under ESPS, shares are offered upfront. Under ESOP, rights are granted to employees to acquire shares at pre-agreed price subject to the vesting period. In March 2017, the finance ministry had agreed in principle to allow public sector banks to offer stock options to their employees from financial year 2018-19.

One of the motives behind the issuance of stock options has been to incentivise employees with a better pay package. Vinod Rai, chief of Banks Board Bureau, had said that the compensation packages of officials in the state-run banks may be overhauled, and that they might be provided with more flexible variable components, including bonuses, ESOPs and performance-linked packages.