Public sector lender United Bank of India (UBI) today said that it was open to a follow-on-public offer (FPO) to meet the additional capital requirement to comply with the proposed Basel-III norms.
The requirement would necessitate Indian banks to raise Rs 600,000 crore in external capital over the next nine years, says a September 2010 research report by credit rating agency Icra.
"At the moment, the bank is well capitalised to grow at 20-25 per cent (annually) for the next two years. Going forward, we will have to evaluate options to raise capital," said Bhaskar Sen, chairman and managing director, at the Federation of Indian Chambers of Commerce and Industry’s banking conclave here on Monday.
The proposed Basel-III guidelines seek to improve the ability of banks to withstand periods of financial stress, by prescribing more stringent capital and liquidity requirements.
“Over the next five years, we will see many banks raising capital through FPO. They need long-term capital to meet Basel-III,” said Sen.
In 2010, UBI tapped the capital market through an Initial Public Offering and the current government stake is 85.48 per cent. This stake in public sector banks cannot go below 51 per cent, according to current regulations. On a possible rate rise by the Reserve Bank of India in Tuesday's monetary policy review, Sen said a further rise could have an impact on project loans. “Project loans where the revised rate of interest will turn out to be higher than the internal rate of return could be under some stress” he said.
An increase would not have much impact on credit growth and UBI was targeting credit growth of 20 per cent this financial year, said Sen. Also, there could be some concern about the asset quality in segments like personal and housing loans.
“We have been effectively managing our funds by exiting from low-yield advances and shedding high-cost deposits. So, we hope to have a healthy net interest margin (NIM),” said Sen.