UCO Bank follow-on offer by Jan

UCO Bank is expecting the approval of the Reserve Bank of India (RBI) for its proposed general insurance joint venture by November this year. The bank, which would join the bandwagon of PSU banks getting into insurance business, would hold 30% in the venture.
Floating its own JV would also mean discontinuing its bancassurance arrangement with Reliance General Insurance Company, with which it entered into in September.

While declining the to name the foreign partner, S K Goel, chairman and managing director, UCO Bank, said, “We expect to get some preliminary approvals by the close of the fiscal. Once the RBI approval comes through, we would apply to the insurance regulator. The arrangement with Reliance General was an intermediary measure.”

While the foreign partner would have 26% in the joint venture, a second public sector bank would also be roped in, Goel said.

While insurance would be one area of operation, the bank also proposes to come up with its follow-on public offer in January 2010. This is estimated to raise around Rs 800-900 crore and at the present market price could fetch a premium of Rs 60, Goel said.

Speaking on the bank’s performance during the second half of the year and way forward, Goel said that he was looking at a balance sheet size of Rs 2.2 lakh crore by the close of the fiscal. Goel said the bank’s net interest margin had gone up to 1.88% during July-September from 1.74% in the previous quarter due to a fall in deposit cost to 6.64% from 6.69% during the period.

“We expect good profits by the close of the fiscal. Our global business, which suffered in the wake of the financial downturn, is showing signs of restoring back to normal. But we are not being too aggressive in global business,” he said.  

The bank plans to bolster its net interest margin (NIM) from 1.88% to 2.15% by the end of 2009-10. “We have high-cost deposits of almost Rs 9,000 crore, which we will shed in the second half of the year. The focus is on current accounts and savings accounts (CASA) deposits. During April-September, we shed Rs 16,000-17,000 crore of high-cost deposits. Out of the bank’s total deposits, CASA accounts for 25%.

UCO Bank has been able to bring down its net non-performing assets to 1.01% of total loans as on September 30, 2009, as compared to 1.61% in the same period last year. It is also stepping up focus on the retail lending. The bank has launched a new scheme — UCO Comfort — wherein customers can convert their high-cost home loans from finance companies and private sector banks into a UCO Bank home loan at an interest rate of 8.0%-8.5%, Goel said.

UCO Bank has a headroom to raise Rs 800 crore as tier-II capital, but it does not wish to raise it immediately as it is a costlier capital.

The bank is also awaiting the nod of the government to raise Rs 700 crore via perpetual non-cumulative preference shares.