UBI plans to slash equity capital

Kolkata-based United Bank of India (UBI) is contemplating a drastic reduction in its paid-up equity capital in order to report a better earnings per share as part of its restructuring process.

Higher EPS would enable UBI to command a good premium for its initial public offering. The executive director of UBI, Sunanda Lahiri, said the bank had already submitted a proposal to RBI for reducing the paid-up equity base.

She made it clear that UBI would prefer to access the capital market when it is in a position to command a premium of Rs 30-40 per share of Rs 10.

"Before accessing the capital market, we shall consolidate our financial strength. With current financials we cannot command good premium. We do not want to come out with an at par issue. If the premium is good then that will immensely improve our reserves," she said.

Lahiri pointed out that the current paid-up equity of the bank at Rs 1,532 crore is too high compared to the reserves and the profitability of the bank.

The bank would be looking at reducing its paid-up capital to Rs 300 crore, she added. This would be done through conversion of Rs 1,200 crore into preference shares.

"We need to do that as unless the bank has a sleek capital base it cannot have a healthy earnings per share considering the fact that we have started making profit only recently," she added.

The ED of UBI said she was hopeful that the bank would achieve the desired target in the next 2-3 years.

"The way UBI is progressing, reserves of Rs 1,000 crore is not far away. So with Rs 300 crore paid up equity, we will be in a much better position," she added. The bank currently has reserves of over Rs 200 crore.

The chairman and managing director of UBI, P K Gupta, said that the bank was planning to open 150 more branches in three years.

It had received licences for opening 50 branches during the current financial year from RBI.

These would be in Uttar Pradesh, Delhi, Gujarat, Madhya Pradesh, Uttaranchal, Maharashtra and Tamil Nadu.

UBI is also planning to bring 55 branches under core banking solutions by March 2007.