The United Bank of India (UBI) will come out with an initial public offer (IPO) by December 2009. The bank would raise about Rs 400 crore through the issue, said S C Gupta, chairman and managing director, UBI, on the sidelines of Ficci banking conclave, in Kolkata on Monday.
The bank might reduce government equity by up to 20 per cent, and was in the process drafting a red herring prospectus (DRHP), to be filed with the Securities and Exchange Board of India (SEBI), after the bank's audited results were available in September, a senior bank official said. Prior to the IPO, the bank needs to trim down its capital from the current level of Rs 1,532 crore to Rs 266 crore. The balance amount of Rs 1,266 crore, after being returned to the government, will be subsequently transferred to capital reserve account during the FY 2009-10.
Meanwhile, the Union government has contributed Rs 250 crore as tier-I capital, at repo plus 100 basis points. The bank will receive further Rs 550 crore in FY 2009-10 in tier-I as perpetual non-cumulative preference shares (PNCPS).
UBI expected a 25 per cent growth in credit and 21 per cent increase in deposits this fiscal, said Gupta.
UBI will open representative office in Bangladesh by December, followed by one in Myanmar.
Gupta said, the government should increase the credit exposure limits of banks to corporate groups taking up infrastructure projects. At present, the credit exposure ceiling is 15 per cent of the bank’s capital funds in case of a single borrower.
"Banks in India are not allowed to accept deposits beyond 10 years. Infrastructure financing is generally for 15-20 years. Banks need to have long term funds, to remove the mismatch," said Gupta. Also, there was a need to develop the debt market to boost banks' capital, he added.
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Further, there was a room for consolidation of Indian banks in the face of competition.
"To boost the efficiency of banks, we need to have consolidation. Serious public view needs to be mobilised," said Gupta.
Reduction in Interest Rate
UBI expects 25-50 basis points reduction in prime lending rate, when the asset-liability committee of the bank meet next week. The bank would also take a call on reducing deposits rate, said Gupta. However, a large borrowing programme by the government was likely to put pressure on banks' ability to reduce lending rates, he added.
Between September 2008 and April 2009, several banks had already reduced lending rates by more than two per cent, he said.
Also, the prevailing government savings scheme also hindered banks' ability to reduce rates.
"There is a room for further reduction in interest rates, but the rates of government deposits scheme has to come down. If the deposits does not go up beyond a point, the rate of interest on bonds will push up, which could be a dampener in banks' ability to reduce rates," said Gupta.