Union Bank may raise Rs 1500 cr

Union Bank of India (UBI), the Mumbai-based mid-sized bank, plans to raise about Rs 1,500 crore through a mix of tier-I hybrid capital and upper tier-II bonds in the next three months to ensure its capital to risk-weighted assets ratio (CRAR) remains well above 12 per cent after implementation of Basel-II norms.

At present, the bank's CRAR is 11.21 per cent. But after complete compliance with Basel II from March 31, 2007, it is expected to fall to 10.09 per cent.

"Our objective is to maintain the ratio (CRAR) at 12 per cent and above. The proposed capital infusion will boost the bank's CRAR by over 3 per cent," Chairman M V Nair said.

Basel II norms, or the revised capital adequacy framework, will require banks worldwide to provide capital for operational risk, in addition to credit and market risks.

The current capital adequacy or Basel I norms, introduced in the late '90s, require banks in India to have CRAR of 9 per cent and capital allocation for market risks were introduced only recently.

UBI has a headroom to raise Rs 600 crore by way of tier-I hybrid capital and an additional Rs 1,800 crore through tier-II bonds. "But our requirement will be about Rs 1,500 crore," Nair said.

He said the bank was trying to contain cost of funds by increasing the share of savings and current account deposits in its liability mix.

The bank's sales team has been given a mandate for increasing the level of low-cost deposits and a decision has also been taken to strengthen its sales force to 2,000 by the end of this year from 1,500 now.

UBI also plans to bring down its NPA (non-performing assets) ratio to below 1 per cent in a bid to unlock resources for augmenting working capital. It has targeted 25 per cent increase in advances in 2006-07.

The bank considers spending Rs 175 crore for technology upgrades, besides substantial expenditure on opening of 100 new branches and renovation of 300 branches during the year.

As part of its global expansion plans, Union Bank has received the RBI go-ahead to open two branches at Doha and Hong Kong and representative offices at Dubai and Sanghai.

"We have sought permission of the respective countries' central banks to open our offices and will start our operations as soon as the go-ahead comes," the chairman said.

He said the implementation of RTGS (real-time gross settlement) and NEFT (national electronic fund transfer) networks had improved money remittance systems.

On the collection side, the bank intends to improve the efficiency level by putting in place over the next two weeks a new system for assured credit of outstation cheque on the fifth day itself, which will be just one-third of the time taken now (i.e. 15 days). Initially, the new collection system will be implemented in 760 of UBI's 2,090 branches.