Raising funds via IPO to meet credit demands: United Bank

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The 5 crore equity shares initial public offering (IPO) of United Bank of India has opened for subscription today. The price will be determined through a 100% book building process. The price band is at Rs 60-66 per share and the issue is available at a 5% discount to retail investors. The IPO will close on February 25, 2010.

The bank is currently a wholly-owned undertaking of the Government of India. Its business is principally divided into retail banking, corporate/ wholesale banking, priority sector banking, treasury operations and other banking services such as agency functions for insurance and mutual fund distribution, pension and tax collection services.

Satish Chander Gupta, CMD of United Bank of India says funds are being raised to meet the growing credit demands. "Going forward this is will push our tier I CRAR to above 8%."

Below is a verbatim transcript of the interview. Also watch the video.

Q: Walk us through the internals of the banks in terms of what the net interest margin stands at, what kind of non-performing assets you have and what kind of capital adequacy ratio you have?

A: This is our first issue. We have 5 crore shares at a price band of Rs 60-66 per share. We intend to raise to the upper side of Rs 330 crore at a premium of about 56 and there is also a discount of upto Rs 3 for retail investors. Basically our capital to risk assets ratio (CRAR) will shoot up further. This is to meet our growing credit demand. Going forward, this is what will push our CRAR, particularly tier I, to above 8%.

Q: Take us through what your book value will be by the end of this year, so that people can value your stock better?

A: We will continue to have good profits. Upto September we had close to Rs 231 crore against total Rs 358 crore last year.

Q: Your loan book mix is primarily corporate but I believe the bank intends to shift towards a more retail focus. Why is that?

A: We have about 12% agriculture, about 13% retail, 11% in others and micro, small and medium enterprises (MSME) is about 13%. Corporate is 50% and above. Retail is definitely giving us better spread and also the net interest margin (NIM). That is how we are trying to concentrate on this area more. In our area of operations-particularly in the East and the North East-there is a good potential project so we are inline with the demand that is there in those areas.

Q: If you take North and the North East - that's almost two thirds of your book. So in a sense you are a fairly regional bank though you do have some presence in other parts of the country. In that sense would you be close to or open to aligning with a larger bank and consolidate into a larger national entity? There was talk of lot of consolidation just a few months back. Would you be open to such a move?

A: Consolidation is another matter but as far as we are concerned, the branches that we have in the East and the North East-we have close to 80% branches there and they are contributing about 40% of our business and balanced 20% branches in other parts of India are contributing to about 60%. Overall, we are increasing our pan India and also tapping the potential that is available in the East and the North East area.

Q: If you do make switching your loan book, how will that impact things for FY11 both in terms of how much you see your margins improving by and whether loan growth can be scaled up for the bank?

A: Our NIM has been in the average range of about 2.4% or so. It has been 3.5-3.7% and we should be inline with that 2.4%.

Q: Your return on equity, do you see it moving up from the current level of 15-16%?

A: That is going to be sustained and improved.