Union Bank to go in for second float

Union Bank of India is planning to announce its second IPO of 4.5 crore shares to cap its capital adequacy ratio. The bank has already filed its application with the Centre and is awaiting approval, said K C Verghese, chairman and managing director, Union Bank of India.

"The board has approved issue of equity capital of 4.50 crore shares to the public by the second public issue. This would take care of business growth of the bank. The issue may be through book building mechanism," added Verghese.

After the issue, the Centre's shareholding may come down from the existing 60.85 per cent to 55.45 per cent, he informed.

The issue is aimed at shoring up the capital adequacy ratio in view of the robust growth in credit and to meet the Basel II requirements. The capital adequacy ratio of the bank is likely to touch 11.50 per cent mark from 1.06 per cent mark as on September 30, 2005.

Commenting on the likely announcement from RBI regarding other instruments for raising Tier I capital Verghese said, "Preferential allotment of share is one option that RBI is exploring.The inclusion of preference share as an instrument would come across as a major relief to public sector banks as it would not hamper voting rights."

Central government might allow PSU banks to raise Tier I capital through this route without reducing the government's share below 51 per cent, he hoped.

Another option might be long term debt instruments and it might attract investment from insurance companies, he added.

Clarifying on market news regarding probable merger of Union Bank with Bank of India, Verghese said that there has not been any formal proposal for the same. "Consolidation among Indian banks might be the call of the day as margins are thinning significantly," Verghese commented.

Verghese feels that if Indian banks are to compete globally they need to use their resources in a cost effective manner and consolidation might be a good idea.

"But there should be a consensus among stakeholders including political parties, union and the banks," Verghese elaborated.

The bank's non performing assets stood at 1.38 per cent as compared to 1.68 per cent last year.

The bank has got permission from RBI to open representative offices in Dubai and Doha and is awaiting go-ahead from local authorities, Verghese informed.

The bank has also tied up with Sharekhan for enabling its customers to trade in equity market. The pilot project would be ready for all its customers within a month's time, he added.