Calcutta, June 8: The United Bank of India (UBI) is betting on fund infusion from the LIC and the Centre to help it shore up its capital base under Basel III guidelines.
The Calcutta-based bank has set a target to maintain a 10 per cent capital adequacy in 2014-15 against the regulatory requirement of 9 per cent.
Bank sources said the UBI estimated a total capital requirement of Rs 1,550 crore to maintain its capital adequacy at 10 per cent based on the business prospects in 2014-15. It will seek shareholders’ approval in its annual general meeting on June 18 to raise around Rs 300 crore from the LIC and Rs 274 crore through the preferential allotment of perpetual non-cumulative preference shares to the central government.
The bank’s poor financial results at the end of the December quarter had taken a toll on its capital adequacy, and the ratio of Tier-I capital to risk-weighted assets was only 5.6 per cent against the trigger level of 6.125 per cent under Basel III. Rating agency Fitch had expressed its concern that the bank’s compounding losses would exacerbate the risk for investors.
However, following a strong recovery drive in the subsequent quarter, which lowered the bank’s provisioning requirement for bad loans, the Tier-I capital improved to 6.54 per cent in the quarter ended March.
This latest round of capital infusion from the Centre is in addition to Rs 700 crore it had allocated to the bank in December 2013. At present, the central government holds 88 per cent of the UBI’s paid-up equity capital, while the LIC holds around 3.10 per cent.
According to market analysts, the bank had to approach institutional investors for additional funds as the government holding is already close to the 90-per-cent threshold, necessary to comply with a regulatory requirement of a minimum 10-per-cent public shareholding in public sector undertakings. The bank is offering a premium of Rs 25.50 per equity share of a face value of Rs 10 to the LIC to subscribe to its shares.
Amid concerns over rising bad loans, finance minister Arun Jaitley will hold pre-budget consultations with the heads of banks and financial institutions on June 10 to deal with the situation.
A meeting with CMDs and CEOs of banking and financial institutions is scheduled for Tuesday, a day after the Jaitley’s pre-budget consultation with the state finance ministers, sources said.
To be presented in the first week of July, it will be Jaitley’s maiden budget. Banks and insurance companies are likely to seek tax benefit for their products in the budget.