United Bank plans to raise Rs 400 cr in IPO

State-owned United Bank of India is planning an initial public offering (IPO) by December 2009 to raise around Rs 400 crore.

The government, which is the sole shareholder in the bank, is expected to see its share drop by up to 20 per cent. United Bank was in the process of drafting a prospectus after the bank’s audited results were available in September, an executive at the bank said.

The IPO would be preceeded by capital restructuring, where the paid-up base would be lowered from Rs 1,532 crore to Rs 266 crore. The remaining Rs 1,266 crore, after being returned to the government, would be transferred to the capital reserve account in 2009-10, he added.

The Centre has already contributed Rs 250 crore as Tier-I capital, at repo plus 100 basis points. The bank will receive an additional Rs 550 crore during the current financial year in the form of perpetual non-cumulative preference shares (PNCPS), which is treated as Tier-I capital.

United Bank, along with Punjab & Sind Bank, is the only unlisted public sector bank. While no timeframe was available for listing Punjab & Sind Bank, the lender was in talks with the Small Industries Development Bank of India for stake sale.

If United Bank’s plans fructify, this would be the first IPO by a bank since July 2007 when Central Bank of India raised Rs 816 crore. In March 2008, State Bank of India had raised over Rs 16,000 crore through a rights issue, of which Rs 10,000 crore came from the government, the largest shareholder.

On the sidelines of a banking conference organised by Ficci, UBI Chairman and Managing Director S C Gupta said the bank expected a 25 per cent growth in credit during the current financial year, while deposits were projected to expand by 21 per cent.

Gupta also urged the government to increase the group exposure limit for banks that would enable them to fund the infrastructure projects. “In India, banks are not allowed to accept deposits beyond 10 years. Infrastructure financing is generally for 15-20 years. Banks need to have long-term funds, to remove the mismatch,” said Gupta.

He also said that there was room for consolidation of Indian banks in the face of competition.

UBI would open representative office in Bangladesh by December, followed by one in Myanmar, Gupta said.