The Satara-based United Western Bank (UWB) is targeting co-operative banks, provident funds (PFs), old private banks, and high networth individuals to push through private placement of its Rs 35 crore unrated Tier-II subordinated bonds issue.
Public banks, however, are reluctant to subscribe to the issue on account of the ongoing tussle between the UWB management and the Sicom-Makharia combine, its lacklustre financial performance and the absence of rating.
UWB's Tier-II issue, which comes with a right to retain 100 per cent oversubscription, offers very high coupon rates of 9.55 per cent and 9.65 per cent on bonds of 63 months tenor and 87 months tenor respectively.
Compare this with the Rs 100 crore unrated Tier-II issue of UTI Bank, which was raised recently. The bank offered a coupon rate of 8.80 per cent.
Market sources pointed out that UWB is paying close to the highest coupon rate permissible under central bank guidelines.
As per RBI guidelines coupon/ interest rate should not be more than 200 basis points above the yield on the government security of equal residual maturity. As notified by the Fixed Income Money Markets and Derivatives Association (FIMMDA), the yield on gilts of equal residual maturity as on June 4 is 7.57 per cent for 60 months and 7.70 per cent for 87 months.
UWB's issue, which opened on September 4 and closes on September 24, is expected to sail through as co-operative banks, PFs, old private banks, and high networth individuals are unlikely to let an opportunity to lock into high interest rates pass by.
UWB's memorandum of private placement is thin on disclosures as it does not reveal the fact that a similar bond issue of the bank made in March 2002 failed to garner minimum subscription and had to be withdrawn. It also does not mention that there are a number of litigations pending against the bank and its directors, filed by major shareholders of the bank.
To tide over the serious problem of sharp decline in deposits and consequent liquidity problems, the bank has resorted to additional borrowing and its liquid assets such as cash and balances with RBI, other banks and call have declined sharply.
