Calcutta, Feb. 15: The board of public sector lender United Bank of India (UBI) today approved shoring up tier 1 capital by up to Rs 1,000 crore under the Basel III norms to arrest the declining capital adequacy ratio.
The bank had suffered a net loss of Rs 1,238.08 crore in the December quarter on account of higher provisioning for rising bad assets.
As a result of the poor performance, the bank’s capital adequacy under the Basel III norms declined.
Rating agency Fitch had pointed out that the UBI’s compounding losses would exacerbate the risk for investors. This is because the UBI’s tier 1 ratio — the ratio of its core equity capital to the risk weighted assets — was only 5.6 per cent as of December, below the trigger level of 6.125 per cent under the Basel III norms.
The UBI today informed the bourses it would raise Rs 1,000 crore through a combination of Basel III compliant bonds and preference shares to the government and institutional investors.
Earlier, banking secretary Rajiv Takru had said the government might consider injecting more capital into the bank. This capital infusion will be in addition to the Rs 700 crore budgetary allocation to the bank.
Analysts believe the UBI had to select multiple routes of raising funds because of the limitations and caps on investment.
“The bank needed capital to grow and given the situation it had to be a combination of several instruments,” Robin Roy, associate director (financial services) of PwC India, told The Telegraph.
According to Roy, the bank is going through some transformational changes. “But the future looks positive and sector wise, there is still scope of growth,” he said.
The board also informed the bourses that it would approach the central government for conversion of existing perpetual non-cumulative preference shares into Basel III compliant securities.