Union Bank to raise Rs 300 crore

Other income drives Q2 net up by 42%

 Cuts one-year deposit rates by 75 basis points

MUMBAI: State-owned Union Bank of India plans to raise a minimum of Rs 300 crore through a domestic Tier I bond issue before the end of this financial year.

“The bank has a headroom of Rs 400 crore for raising Tier-I bonds and Rs 1,800 crore for upper Tier-II bonds. As of now, we will surely raise Rs 300 crore by March 2008. The Tier II figure will depend on credit growth and market requirements,” said N S Mehta, chief financial officer Union Bank of India.

The bank plans to issue the bonds domestically, mostly when interest rates are lower in November. “The money will come in much before March 2008,” the official said.

The bank needs the capital to keep up with Basel-II requirements. Union Bank’s capital adequacy ratio was at 11.55% as of September 2007. The additional capital will take the ratio closer to 12%, a bank official said.

Union Bank has also announced a cut in the interest rates on deposits, effective Wednesday. Interest for 1-year deposits has been slashed from 9% to 8.25%, and deposits of 3-5 years tenor will give only 8.75% interest compared with 9% previously.

M V Nair, chairman and managing director, Union Bank of India, said, “I don’t foresee a hike in the CRR (cash reserve ratio). If it’s raised, we will do our calculations. For a marginal increase we won’t pass on the burden to customers. We have reduced the interest rates on deposits so that it doesn’t impact our NIM (net interest margin).”

For the second-quarter, the bank’s net profit grew 42.27% to Rs 276 crore from Rs 194 crore in quarter-ended September 2006.

Nair attributed the strong results to a 77% growth in non-interest income to Rs 271 crore.

For the first half, net profit rose to Rs 501 crore from Rs 361 crore a year ago. The bank’s current and savings accounts constituted 32.5% of its total deposits in the half year ended September 07.

The bank is targeting Rs 80,000 crore in loan advances by March 2008, with a four pronged growth strategy targeting small and medium enterprises (SMEs), retail, agri businesses and corporates.

The bank maintained its NIM for the half year ended September 2007 at 2.86% as against 2.85% in September 06.

“The reduction in interest on deposits, coupled with the bank’s focus on retail, SME, agriculture sector and other high-yielding advances should impact the NIM of the bank positively,” Nair said.

The bank has kept a NIM target of over 3% by March 2008.

The Union Bank share rose to close at Rs 160.8 on the Bombay Stock Exchange.