The state-owned Union Bank of India has decided to ignore the word of caution by Moody's Investor Services as it moves towards its public issue.
Moody's has remarked that the bank's rating, given its inherent financial position, would have warranted a long term foreign currency deposit rating of B1 if it was not supported by the government in an event of a crisis. B1 is one notch below the Ba3 rating now enjoyed by the bank. B1 reflects questionable credit quality.
Moody's has also said in the IPO document that the ability of the bank to meet deposit obligations punctually may be uncertain. Banks rated B for deposits offer generally poor credit quality. Assurance of punctual payment of deposit obligations over long period of time is small.
Union Bank executive director M Venugopalan said the bank was assigned rating equal to the sovereign rating owing to its ownership. To be fair, Moody's has mentioned the bank's large branch network as a source of strength.
Venugopalan said the bank hoped to recover Rs 225 crore through the recently constituted Securitisation and Financial Reconstruction Ordinance. The figure reflects 75 per cent of dues from 30 entities. The bank is planning to issue notices to them.
On the business front, Union Bank hopes to do business of Rs 110,000 crore by 2005. The bank's deposit base has been growing at a 12.2 per cent CAGR, while advances have been growing at 23.7 per cent CAGR. Income witnessed 12.6 per cent CAGR and net profit 41.6 per cent CAGR.
The bank has lined up several new products for launch in the next few months. The bank is also in the process of commissioning depository facilities at 35 branches.
