Union Bank not to hike rates

Net interest margins of the bank are not under pressure: Cherian Varghese

Union Bank of India is not planning to hike lending rates for now. "Net interest margins of the bank are not under pressure," Cherian Varghese, chairman and managing director, said here today.

The bank will hit the capital market with its follow-on offer to raise about Rs 500 crore on February 15. The public offer for up to 4.5 crore share would remain open for bidding up to February 21.

The premium for the share of Rs 10 each would be decided through book building and the price would be announced a day prior to the issue listing.

The public sector bank will use the proceeds to meet demand for capital arising from implementation of Basel II standards and growth in assets and investment portfolio,

The bank's capital adequacy ratio declined to 10.91 per cent at the end of December 2005 from 11.38 per cent a year ago on aggressive credit growth. Post-issue, the bank expects CAR to increase to 12 per cent.

The equity issue is part of the Rs 2,000 crore total capital requirement the bank has envisaged over three years. The total capital requirement includes Tier-I capital of Rs 1,200 crore and the remaining in the form of Tier-II capital. Union Bank shares today closed slightly higher on Bombay at Rs 120.7 against previous close of Rs 120.15.

Of the 4.5 crore shares on offer, 45 lakh shares would be reserved for bank employees. Of the net issue to public, 50 per cent is reserved for qualified institutional investors, 15 per cent to high networth individuals and balance 5 per cent to retail investors.

The issue will constitute 8.91 per cent of the total post-issue paid-up equity capital. The government stake's in the bank will fall to 55.43 per cent after the issue from 60.85 per cent now.