United Bank to seek shareholders’ nod to raise Rs1,300 crore2 min read . Updated: 20 May 2014, 12:45 AM IST
United Bank will seek shareholders' approval for the proposal at its annual general meeting on 18 June
Mumbai/Kolkata: State-run United Bank of India, which is facing a crisis following a substantial increase in bad loans on its books, on Monday said it plans to raise Rs1,300 crore by selling shares to ramp up its capital base.
The bank will seek shareholders’ approval for the proposal at its annual general meeting on 18 June.
The Kolkata-based lender plans to raise Rs1,000 crore through a public issue, qualified institutional placement or a rights issue and an additional Rs300 crore through the issue of preferential allotment to the government and Life Insurance Corp. of India (LIC) to raise another Rs300 crore, the bank said in a notification to stock exchanges.
United Bank’s capital raising plan assumes significance as the bank still has a substantial amount of sticky assets on its books. Under current norms, banks need to set aside money for bad loans by up to 100% depending upon the nature of the asset. State-run banks are struggling to meet the large capital requirement need to meet the advanced Basel-III international norms and also to provide for escalating bad loans on their books.
In the interim budget for 2014-15, the government had announced a capital infusion of Rs11,200 crore in public sector banks. The government later said it will provide an additional Rs6,000 to Rs8,000 crore to government-owned banks.
For the quarter ended 31 March, United Bank reported a net profit of Rs469.37 crore as compared with a net profit of Rs31.18 crore in the year-ago period, largely on account of lower provisioning towards sticky assets.
Deepak Narang, executive director at United Bank, said the lender is looking to raise capital to meet its business growth target.
“We are creating an enabling situation (by seeking shareholders’ approval for the capital raising plan), so that whenever the restriction on lending is relaxed by the government, we could be in a position to scale up loan disbursals," Narang said.
“After we put up a better performance—particularly by improving capital adequacy ratio—in the fourth quarter, we are now ready to approach the finance ministry to lift the lending cap," Narang said.
In November, the finance ministry had banned United Bank from lending more than Rs10 crore to a single borrower after its capital adequacy fell to the bare minimum.
The lender will finalise its strategy to persuade the government to relax the restrictions at a board meeting on 30 May, Narang said.
United Bank posted a net loss of Rs1,238.08 crore in the December quarter due to mounting bad loans. The gross non-performing assets (NPAs) came down by Rs1,427.49 crore in the three months till March.
As a percentage of total loans, the gross NPAs of the bank stood at 10.47% on 31 March, down from 10.82% three months earlier.
Net NPAs declined in the March quarter by Rs965.85 crore to Rs4,664.11 crore, or to 7.18% of the bank’s total assets, down from 7.44% at the end of December.
Part of the reason for the rise in bad loans was attributed by the bank to a software deficiency used for identifying bad loans, and the issue was subsequently resolved with the help of service provider Infosys Ltd, the bank said.
Shares of United Bank gained 6.6% on Monday to close at Rs40.3 on BSE, while India’s benchmark index, Sensex, gained 1% to close at 24,363.05 points.