Debabrata Sarkar, CMD of Union Bank of India said they are looking to raise Rs 1500 crore through perpetual bonds. Taking into consideration the Basel III committee recommendations, a mix of tier II bonds along with perpetual bonds may help them raise capital in the December quarter itself, he believes.
Sarkar further elaborated that out of the Rs 1500 crore, Tier I perpetual bonds will be worth around Rs 300 to 400 crore.
Here is the edited transcript of the interview on CNBC-TV18.
Q: What is your capital adequacy now, what is the Tier one and what would you like it to be in this fiscal year?
A: As far as my current capital is concerned, till September the total capital adequacy ratio was 11.39 percent and tier one was 8.17 percent while tier two was at 3.22 percent.
Q: At the end of the third quarter all this would have been trimmed by about 0.5 percent you think given the credit growth?
A: Last Saturday we had a board meeting and we took the authority's mandate for Rs 1500 crore, both in Tier II as well as in case of perpetual bonds. We are checking the present growth so that we can look into the credit growth.
Q: You all are looking to raise about Rs 1500 crore of bonds. So could you walk us through what that will do?
A: From January 1, 2013 Basel III committee recommendations will be implemented. So keeping these in mind, we thought that perpetual bonds can go for Rs 1500 crore with a mix of tier II bonds as well as perpetual bonds so that we can raise a little bit in this December quarter itself.
Q: You are going to raise Rs 1500 crore only through perpetual bond?
A: Perpetual as well as through a tier II mix, considering the appetite of the market.
Q: So what will be the Tier I part of the perpetual bond of this Rs 1500 crore?
A: At this moment, we think out of this Rs 1500 crore, around Rs 300 to 400 crore will be raised via Tier I capital perpetual bond, in accordance with the appetite of the market and the rest will be raised by Tier II considering the absorption capacity of the market.
Q: What will this do to your percentages, you gave us figures of 8.17 percent?
A: In that case, considering Basel III let us calculate what it will be but, we are trying to make it more than 10 percent as per Basel III recommendations.
Q: With this perpetual bond issue of Rs 300-400 crore, what will the Tier I go to?
A: I don't have exact calculations but, roughly it will be a little bit below 7 percent as per Basel III. But, the final calculation has to be done.
Q: You said after the Rs 300-400 crore of Tier I perpetual bond is raised, the Tier I will go above 8 percent I would assume? What will it go to?
A: As per Tier III, I am yet to calculate it but, if we go by Basel II it is certainly above 8 percent. In Basel III we will have to see how much we will have to factor there and we have to calculate it only after the December quarter ends.
Q: Your capital will be kept on Basel II requirements already, isn't it?
Q: When does Basel III kick in for you?
A: Basel III is applicable from January 1, 2013.
Q: Would you need to raise some equity funding?
A: We got the letter from the ministry in principle that they will infuse the capital. Let us have a clear idea about how much they are going in for and in what form. Then we can decide how we can go for the other area also for raising my Tier I capital, especially my common equity capital.
Q: From the letter that you received from the government, did you get any kind of details about when and how much?
A: No, it is only in principle. They are telling that the government wants to infuse the capital in Bank of India and we have received a letter in that regard.
Q: So they have not indicated how much?
A: No, they have not indicated how much they are giving to us. We have applied for about Rs 1,000 crore and we are hopeful of getting it.
Q: Can you give us any update on your own NPL position? Your NPLs in the quarter that just went by was actually a positive number compared to most of your peers. You saw your net NPAs fall by about 5 percent QoQ. Now that this quarter has more or less ended, what is the sense you are getting? Will it be lower than the previous quarter?
A: The steps that we have taken for restriction of slippage, reducing gross NPA as well as net NPA is still on and I am hopeful that we will be able to reduce the NPL.
Q: We were given to understand that a group of banks have met the Finance Ministry with respect to your exposure to the power sector. PNB, State Bank of India and Oriental Bank of Commerce were mentioned in that list. Do you have any power generators who have borrowed from Union Bank? Are you aware of what happened at this meeting?
A: We have taken stock of the power sector. Very rarely we are taking new exposures. Disbursement is taking place for the exposures that we had taken earlier. But at this moment, there is no such issue about forthcoming restructuring or other things.
Q: Those are SEBs. I am referring to power generators, the ultra mega power plants and the other power generators who are stuck for coal and who may be ready to commission but cannot commission either because no SEB is buying or because they don’t have fuel. We understand that Punjab National Bank (PNB), State Bank of India (SBI) and Oriental Bank of Commerce met the finance ministry on this. Are you aware of such a meeting and do you have any power generators whom you have loaned to?
A: I don't have any idea about that. May be they are contacting some banks about that. But, so far as this area is concerned, we explained our position to the government the last time when we met the finance minister as well as in the meeting last week with RBI also. We expressed our concern that if the input is not taken care of then there is little problem with the power generation companies. We have talked about this issue and something positive will come as the government is also positive, I feel.
Q: Can you recall whether you have lent to any of the power generators?
A: We have lent to power generators but, at this moment I don’t know the exact position. But, so far there is no concern that they have expressed to me. May be they are contacting some other banks.
Q: The market expectation is that the economy has bottomed out and a good gauge of that is when asset quality for banks improved. So for the industry per se, are you seeing easing off the asset quality strain? Will H2 for the banking industry be better than H1 in terms of asset quality?
A: Every bank is concerned and taking all the steps to see how asset quality can be improved. Economy is still a little under stress but sentiment has improved a lot. However, only improvement of sentiment will not work, some actions should be taken. We are positive that we will be able to restrict the slippage in line with what we have done in earlier quarters. We will be able to reduce gross as well as NPA.