Government to dilute its stake in Uco Bank to about 51%

The bank will convert Rs300 crore worth of the government’s equity into preference shares, and sell up to 100 million shares through a public issue, said its chairman S.K. Goel.

The government approved of the bank’s proposal to restructure its equity capital on 16 April, the executive said here on Monday.

Converting state equity into preference shares is aimed at improving the bank’s earning per share, or EPS, says the bank’s management.

After the conversion, Uco Bank’s equity capital will go down to Rs499.36 crore from Rs799.36 crore now. It is likely to go up by Rs100 crore towards the end of 2008 after the public issue, through which the bank expects to raise Rs500-600 crore.

The conversion, which alone would reduce the government’s stake to 60%, would be complete in a couple of months. The follow-on public issue would be launched in the third quarter of the current fiscal, Goel said. The bank will also raise Rs325 crore by selling preference shares to other investors.

Share prices of Uco Bank gained over 13% on Monday to close at Rs50.15 on the National Stock Exchange, while the bourse’s benchmark index S&P CNX Nifty fell 0.7%.

Employee unions are likely going to resist the bank’s move to pare the government’s holdings. Although none of the union leaders Mint spoke with on Monday evening would make an official statement till the chairman had formally informed them on the decision, they said they would resist “any move to reduce the government’s holding" in the bank.

Goel, however, said he wasn’t worried. “I don’t think any union has ever come in the way of a bank’s growth," he said.

For want of capital that it could put aside to guard against operational and financial risk, Uco Bank had to “go slow" on expanding credit in the last fiscal. The bank’s capital adequacy ratio, or CAR, under Basel II banking norms was 10.09% at the end of March.

“We did not want to grow our loan book because Basel II had to be implemented," executive director B.M. Mittal said.

Uco Bank, which on Monday announced its financial results for the year till March, said advances had grown 17.18%, which fell short of the target set for it by the finance ministry at the beginning of the fiscal year. But its deposits had gone up 23.2% during the year, and combined business growth was in line with the government’s projections.

The bank’s net profit for the March quarter was Rs86 crore. For the entire fiscal year, it was Rs412 crore. Both the figures were ahead of expectations, says Goel.

For the year ahead, the bank is aiming 20% growth in loans and deposits. It’s thrust would be on recovery of bad loans; the bank has written off over Rs1,300 crore so far. It recovered Rs102 crore from written-off assets last year.

The bank, however, said it had to provide for Rs130 crore towards mark-to-market losses in the value of Indian securities.