Union Bank of India eyes Rs 1,000 crore capital infusion

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After raising USD 350 million via medium term note (MTN) for its overseas requirement, state-run Union Bank of India is expecting a capital infusion of Rs 1,000 crore from the government, a top company official said.

"At this moment there is no funding plan. What we have raised through MTN is for deployment overseas, not here. For domestic purpose, we have approached the government for some capital. Let's see how much we get. Our need is about Rs 950-1,000 crore (for this fiscal)," Union Bank of India chairman and managing director D. Sarkar told agencies here.

An MTN is a debt note used by banks to raise capital from overseas market, which matures (paid back) in 5-10 years. They can be issued on fixed or floating coupon basis.

The capital infusion from government shores up equity base of the bank to enhance lending to productive sectors.

Capital adequacy is a challenge, especially with the Basel III norms coming in place, Sarkar added.

As per the final RBI guidelines, which ask banks to keep capital one per cent above what has been prescribed by the Basel committee, banks are supposed to implement the guidelines starting March 2013 in a phased manner and should be fully compliant by March 2018.

The public sector banks, which control nearly 70 per cent of the domestic banking space, will collectively need equity up to Rs 1.5 lakh crore, while the private sector will require up to Rs 25,000 crore in common equity capital.

On the non-equity capital front, state-run banks will require Rs 2.65-2.75 lakh crore while private lenders will need Rs 50,000-60,000 crore.

"We are expecting about 18-20 percent growth in the banking business," Sarkar said adding that the credit offtake is low at present and a good rainfall could compensate it. The bank expects its current account savings account (CASA) deposits to grow to 32 percent.

"We are trying to maintain CASA between 32 to 35 (percent)...at 32 percent at this moment," he said adding they will try to meet its net interest margin target this fiscal.

"We will try to maintain interest margin above 3 percent, not below that," he said.

On doing away with cash reserve ratio, he said, "I have no views on it. Let this debate go on. If we get some interest or it is reduced it's fine, we can reduce our cost."

The bank had recently slashed its home loans to 10.5 per cent and vehicle loans to 10.95 per cent and Sarkar said the exact result will be known after the quarter.

"Impact has started. When the quarter ends then we can assess on how much impact it has on my profit and business," he said.