State-run Union Bank of India (UBI) will need Rs 950-1,000 crore as additional capital to meet its business needs this financial year, chairman and managing director D Sarkar said here on Thursday.
“We had asked for Rs 650 crore from the government last year. But we did not get it. Based on our current growth projections, we will probably need Rs 950-1,000 crore capital this year,” Sarkar told reporters on the sidelines of a banking seminar organised by the Federation of Indian Chambers of Commerce and Industry.
UBI closed the first quarter of 2012-13 with a capital adequacy ratio (CAR, showing a bank’s cushion to absorb risks) of 11.64 per cent. The Tier-I capital adequacy ratio was 8.36 per cent at the end of June. According to Basel-III norms, Indian banks need a minimum CAR of nine per cent, in addition to a capital conservation buffer in the form of common equity at 2.5 per cent of the risk-weighted assets.
In other words, banks’ minimum CAR must be 11.5 per cent. The current Indian requirement is at least nine per cent. The Reserve Bank of India (RBI) has also said the common equity in Tier-I capital must be 5.5 per cent of risk-weighted assets and the minimum tier-I CAR must be seven per cent instead of six per cent.
The new rules take effect from January 2013 and banks will have to implement these by March 2018.
Sarkar said besides strengthening its capital base to meet Basel-III norms, the funds were needed to finance business growth. UBI expects 18-19 per cent growth in advances and 15 per cent in deposits this financial year. Total advances were Rs 173,911 crore and total deposits were Rs 222,110 crore at the end of the first three months of this financial year.