United Bank of India to issue shares to government to raise Rs 608 crore

KOLKATA: The government will infuse Rs 608 crore in state run United Bank of India soon subscribing to the bank's shares at Rs 22.73 including Rs 12.73 premium per share.

This is part of the government’s total capital allocation of Rs 810 crore for the Kolkata-based lender.

The government has budgeted Rs 25,000 crore for this fiscal towards capital infusion for public sector banks, which are struggling with falling capital adequacy levels amid spiraling sticky assets and dwindling profits.

UBI’s capital adequacy ratio, the share of capital to risk-weighted assets, dipped to 9.89% at the end of June, from 10.02% a year back with strains in asset quality. The bank's gross non performing assets has risen to 14.29% of loans outstanding at the end of June, from 9.57% a year back.

The government currently holds 85.91% in UBI and the balance is held by public. Post-issue of preference shares worth Rs 608 crore, the government’s ownership will increase to 88.72%.

UBI’s promoter holding is already beyond 74% defying the minimum 25% public shareholding norm and therefore the bank has sought a special permission from market regulator Securities & Exchange Board of India for the proposed issue. The lender intends to bring down promoter’s holding to 75% by August 21, 2017, it said in a notice to shareholders.

UBI’s stock price closed 2.07% higher at Rs 22.15 Friday.

Out of the proposed Rs 810 crore capital for UBI, 75% or Rs 608 crore has been earmarked for immediate allocation, subject to clearance from all shareholders, while the balance 25% will be injected based on bank's performance against the prescribed activities by the end of 2016.

The bank has called an extraordinary general meeting on September 7 to get shareholders’ approval for the proposed capital infusion at the prescribed prices. The bank will allot up to 26,74,87,901 equity shares on preferential basis.

The bank’s net profit dipped 93% at Rs 38 crore for the June quarter compared to a year ago period due to fresh addition of sticky loans, although it was an improvement from the December quarter when it faced a loss of Rs 413 crore.