Home >Industry >Govt plans United Bank equity conversion to bolster buffers

Kolkata: India’s government plans to convert a Rs275 crore ($46 million) investment in United Bank of India Ltd. into equity to bolster capital buffers at a lender with the highest soured debt ratio in the country. The shares jumped to the highest in almost a year.

Perpetual non-cumulative preference shares that the government holds in United Bank will be converted into common equity to boost capital adequacy ratios, Sanjay Arya, an executive director at the bank, said in a 4 June telephone interview. The lender, based in the eastern city of Kolkata, is trying to complete the transaction by 30 June, he said.

The conversion would lift the bank’s capital adequacy ratio, which was at 9.81% as of March under Basel III rules, closer to the 12% required by the government. The bank’s capital buffer falling below 9% would trigger delayed coupon payments for holders of its Basel II-compliant Tier 1 and Upper Tier 2 bonds under Reserve Bank of India regulations, Fitch Ratings Ltd said in February.

Investors in the lender can heave a sigh of relief, Vishal Narnolia, a Mumbai-based banking analyst at SMC Global Securities Ltd., said by phone. The bank’s capital adequacy ratio will rise along with the government’s share holding.

United Bank shares lender’s stock climbed 2.4% to Rs54.05 at 1:20 pm in Mumbai, the highest intraday level since 18 June 2013. The stock gained 3.5% in the past year, lagging behind the 25% climb in the 12-stock S&P BSE Bankex Index.

United Bank reported a profit of Rs470 crore in the three months to 31 March after posting a loss of Rs1240 crore for the December quarter. Gross nonperforming loans as a percentage of total lending stood at 10.47 % in March, exchange filings showed.

The Indian government owns 88% of United Bank, according to data compiled by Bloomberg. The government will consider investments in the bank to boost its risk buffers, Rajiv Takru, the former banking secretary at India’s finance ministry, said in February. BLOOMBERG

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