Kolkata-based United Bank of India plans to raise Rs 200 crore by selling lower Tier-II bonds in a private placement this week. The amount includes an option to allot additional shares worth Rs 100 crore. The bank would pay a coupon rate of 9.2 per cent for the bonds, which mature in ten years.
"The amount would be used to boost credit growth and meet other business projections," said a senior bank official. The bond issue has been rated 'AA+' by CARE Ratings and 'AA+/stable' by Crisil. Infrastructure Development Finance Company (IDFC) is the sole arranger for the issue.
At the end of September, the state-run bank's capital adequacy ratio was 12.95 per cent, with Tier-1 capital at 8.94 per cent and Tier-II capital at 4.01 per cent. The government holds 85.48 per cent stake in the bank.
The easing of yields on government bonds has provided room for banks and companies to raise funds at lower rates. Yields on government bonds have fallen by 40-50 basis points last month.
The official said the market was conducive for fund raising currently and the bank did not wish to miss the opportunity. The bank's bond issue offers a spread of 70 basis points over the yields on the 10-year benchmark government bond, which closed at 8.49 per cent on Monday.
Last week, Central Bank of India raised Rs 500 crore through Tier-II bonds on a private placement. More banks are expected to follow. K P Jeevan, general manager (fixed income) at Karvy, said bond issuances from more banks can be expected in the fourth quarter. "Liquidity is tight and banks would need capitalisation in the last quarter to meet yearly targets," he said.
Liquidity conditions worsened after December 15, the last date for advance tax payments. Banks have been borrowing close to Rs 1.5 lakh crore daily from the Reserve Bank of India (RBI) under the Liquidity Adjustment Facility. Today, banks borrowed Rs 1.4 lakh crore at a repo rate of 8.5 per cent from RBI.
The demand for funds would be high in the fourth quarter, as banks rush to meet financial year-end targets. Growth in bank advances continued to remain slack in the third quarter, despite festive offers. According to RBI data, bank credit grew 17.7 per cent annually as on December 2. RBI expects credit growth of 18 per cent by the end of March.