Union Bank plans property revaluation to boost its CAR

Union Bank of India (UBI) is considering an option to revalue its property to boost its capital adequacy ratio (CAR), reports Our Bureau in Mumbai. “The board of the bank has suggested to the management, a revaluation of property owned by the bank. The exercise should be over by the end of this fiscal year,” said Union Bank chairman and managing director MV Nair told mediapersons on the sideline of the launch of its `union super salary account’ .

The Reserve Bank of India (RBI) allows banks to consider up to 45% of the revaluation reserves arising from revaluation of assets that are undervalued in the bank’s books to be included in tier-II capital. Banks are turning to this option, as there has been a substantial increase in real estate prices in the last two years. Recently, Bank of India had undertaken the exercise of property revaluation, while Vijaya Bank has expressed their plans to do so. According to Mr Nair, the bank will revalue only those properties which are of Rs 1 crore and above.

Bank analyst say that given the huge rise in property prices, this appears to be a good strategy to boost CAR. According to RBI’s rules, around 55% of the value of the property can be accounted for their tier-II capital. Bank’s CAR is slightly over 12% with over 7% of tier-I capital. “We have a headroom to raise Rs 400 crore of perpetual bonds, but we are not in a hurry to raise the money now,” said Mr Nair. The bank is also looking out for a foreign partner for its entry into the asset management business. The partner is likely to be finalised by the end of the current fiscal.

Meanwhile, the bank has launched `union super salary account’ , wherein the bank will provide debit card, internet banking phone banking and multi-city cheque books and the accountholder will receive the pin number within 48 hours of opening account. The accountholder will also receive insurance cover for accidental death up to Rs 2 lakh.

Accountholders would be entitled to an overdraft of up to 90% of their last drawn salary at 14% interest. The (corporate) employer will have to provide at least 15 accounts for the scheme to be operational. “The bank is targeting 10 lakh accounts and a deposit base of Rs 1,000 crore in the next five months,” Mr Nair added.