The board of United Bank of India on Thursday gave approval to raise Rs 300 crore through a rights issue. It will allot Rs 10 shares each at a premium to be decided subsequently on rights basis to the existing shareholders of the bank as on the record date to be fixed subsequently.
In an interview to CNBC-TV18, Bhaskar Sen, Chairman & Managing Director of United Bank of India spoke about the bank's capital raising plans and the road ahead.
Below is an edited transcript of Bhaskar Sen’s interview on CNBC-TV18.
Q: You recently decided to increase your capital both tier, one perpetual bonds as well as rights issue. What timetable do you have in mind? Will that be for this fiscal?
A: Yes, for debt instrument we are trying to complete the process by end of this month, of course there are certain issues and we are talking to the merchant bankers and as far as rights issue is concerned it will take some more time. By first half of March, we should be able to complete the process and raise capital.
Q: You want to raise Rs 300 crore, and if that is done what is the level of equity dilution?
A: As of now government holding is 81 percent and if government also exercises the option for this rights issue there will not be any dilution effectively.
Q: Are you getting a sense that they will exercise the option for this rights issue?
A: Yes, we have certain indications but we are talking to the government. We are also taking to the merchant bankers.
Q: So there is no question of the government giving you money. The government had setout in its budget 15,000 crore as a ballpark figure to capitalise banks or to give those banks capital which are in need, are you in that que?
A: Last year we did not get any capital infusion from Government of India. We got a huge infusion from LIC. This year, based on our projection we have approached Government of India and then decided that instead of relying only on government infusion let us evaluate other options. So, we had a lengthy discussion at the board level.
We discussed all the available options and finally zeroed on rights issue. It’s not that we are trying to raise the entire amount of our requirement from rights issue. We will exercise all the options in bits and pieces; will also approach Government of India for the residual amount. There is no hurry, we have time.
Q: What is your capital adequacy at this time and what would you like it to be for which you are raising all the capital?
A: As on 30th September our capital to risk assets ratio (CRAR) was 12.06 within which tier one was 8.46. Ofcourse, that is without factoring the internal accruals, the profit which we had booked up to 30th September. Going forward, if we can complete this process and raise the capital, we are expecting our CRAR close to 13 percent by the end of this financial year.
Q: A word on your financials – from what I see in Q2, your NIMs surprised negatively, 45 bps contraction quarter on quarter, while asset quality was relatively stable. What is the trend for both of them?
A: As far as credit growth is concerned, our CD ratio has come down from 72 percent to 67 percent. There was some kind of moderation on the credit side and it was not possible for us to deploy funds very aggressively. We have seen some contraction on the credit book and therefore NIM has come down. Also, there were certain interest reversals because of the restructuring that took place during this point of time and we have seen some impact on NIM. Hopefully, we should be in a position to recover by the end of this financial year.
Q: LIC, once again coming to capitalise banks. Has any conversation begun on that front because LIC recently got the right to increase its stock limit in specific shares? The limit is now 25 percent so they are comfortably off. Like last year, will there be some bank share buying or capital provision by LIC, is there any conversation at all?
A: As far as rights issue is concerned LIC will be entitled. We need to talk to them and also other investors since the board has taken this decision very recently. Now, we have to talk to our major investors, merchant bankers.