Union Bank of India proposes to raise Rs 600 crore by way of hybrid capital during this year and an additional Rs 1,800 crore through tier II bonds.

Speaking to newspersons, the Chairman and Managing Director, Mr M.V. Nair, said: "We will raise these funds to ensure that the capital to risk weighted asset ratio (CRAR) remains above 12 per cent." The bank's CRAR is currently 11.25 per cent.

Mr Nair said that the bank intends to push up its net interest margin over three per cent during the current fiscal. (During the first quarter, the net interest margin was 2.9 per cent.) This, he said, would be achieved by pushing up the average yield on assets to 8.75 per cent by the year-end.

During the first quarter, yield on assets was 8.18 per cent. (The bank has already reached 8.50 per cent.) The increase in asset yields was achieved largely on account of re-pricing of some loan portfolios, Mr Nair said.

In addition, the bank expects its yield on investments to rise to 7.6 per cent on account of the progressive rise in Government securities yields.

The bank also hopes to contain the rise in the cost of its working funds. The average cost of deposits is currently 5.15 per cent, up from five per cent last fiscal.

Mr Nair said that the bank would contain costs by increasing the share of savings and current account deposits in its liability mix.

In addition, the bank plans to bring its NPA ratio to below one per cent, and unlock resources for augmenting working funds.

Union Bank has launched a new deposit product called `Union Cash Certificate.'

This product is aimed entirely at retail depositors. Through this product it aims to raise at least Rs 3,500 crore. The certificates come in nine denominations and are structured on the lines of deep discount bonds.

They would offer an annualised yield of 8.94 per cent for 36 months, 9.32 per cent for 48 months and 9.72 months for 60 months respectively.

According to Mr Nair, the products would directly compete with the National Savings Certificates and the public provident funds since the yields offered are higher. Although the former offer some tax concessions, the latter offer greater liquidity, he added.

Taken from Business Line

thehindubusinessline.in