Union Bank plans to raise Rs 500 cr by February

Union Bank of India plans to raise Rs 500 crore through a follow-on public issue of equity shares before the the end of February 2006.

The equity issue is part of the Rs 2,000 crore total capital requirement the bank has envisaged over the next three years, said K Cherian Varghese, chairman, Union Bank, today.

"Going by the current market price of the bank's shares, we will be able to raise around Rs 500 crore," Varghese said. Union Bank shares closed at Rs 116.05, up 1.49 per cent from yesterday's close.

The government stake in Union Bank will fall to 55.43 per cent after the public issue from 60.85 per cent now.

The total capital requirement includes Tier-I capital of Rs 1,200 crore and the remaining in the form of Tier-II capital.

The bank has already filed a draft prospectus with the Securities and Exchange Board of India (Sebi). "We will hit the market within two weeks after receiving Sebi clearance," Varghese said.

He said the bank's capital adequacy would increase to about 12 per cent after the issue and the bank would like to maintain the capital adequacy ratio at the same level all through.

The impact of implementation of Basel II capital adequacy norms will be in the range of 0.60-0.75 per cent.

Varghese said the 33 per cent growth in credit till September 2005 continued in the quarter ended December 2005. The same was the case with deposits, which grew at 23 per cent.

The bank has made a beginning at selling non-performing assets (NPAs) with a test sale of Rs 8 crore bad loans to Asset Reconstruction Company India Ltd (Arcil).

The bank has also discontinued the practice of lending short-term loans at rates linked to Mumbai inter-bank offered rates (Mibor). "We have now decided to go in for long term, high-yielding loans," Varghese said.