Union Bank plans QIP up to Rs 3,000 cr

Public sector Union Bank of India (UBI) will follow its larger peers Canara Bank and Punjab National Bank (PNB) in raising funds from the equity markets through a qualified institutional placement (QIP) as early as next month, multiple people familiar with the bank's plans said.

"The bank plans to raise between Rs 2000 crore to Rs 3000 crore after its third quarter results annoucement which is slated for the last week of January. The QIP may be priced within the first two weeks of February," said a person familiar with the bank's plans.

If successful UBI will join peers Canara, PNB and Life Insurance Corp (LIC) owned IDBI Bank to raise money from the market. PNB raised Rs 3800 crore while IDBI Bank raised Rs 1400 crore in twin issues which were priced on the same day in the middle of December. Canara Bank had raised Rs 2000 crore earlier in the month.

"The bank has shareholder permission to raise upto Rs 6800 crore but it is not expected to raise more than Rs 3000 crore as the risk appetite for public sector bank shares is still not the best and UBI is still fine tuning its acquisition of Corporation and Andhra Bank effective April 1" said a second person aware of the deal, pointing to the lower than targeted amount garnered by both IDBI as well as PNB.

PNB had targeted Rs 7,000 crore while IDBI Bank had aimed to raise Rs 2,000 crore. Both issues were short of their targets.

UBI plans to restrict its target to Rs 3000 crore and possibly try another issue next fiscal year, the first person cited above.

"The bank is pretty comfortable with regards to capital but liquidity in the market is ample so it is a good time to go to market. The Rs 3000 crore capital will boost UBI's common equity capital (CET 1) by about 50 basis points from 9% to 9.5% and will also dilute government stake by 10% from 89% to 79%," said the first person cited above. An email sent to the bank did not receive a reply.

UBI has taken shareholder approval for capital raising through a special resolution in an EGM at the end of December. UBI's shares ended at Rs 33 a piece on the BSE on Thursday.

This will be the bank's first share sale since it raised Rs 2000 crore through a QIP at the end of 2017. SBI Capital Markets and ICICI Securities are among the bankers to the issue.

Another public sector bank Bank of Baroda has also called for proposals from investment bankers for a share sale. Bankers are likely to be given the mandate next month.

Public sector banks are looking at the equity markets for capital as both the government, their promoter and the Reserve Bank of India (RBI) their regulator have exhorted them to seek capital from the markets.

The government has for the first time in many years not provided for the capitalisation of banks in its annual budget while governor Shaktikanta Das has asked PSU banks to "stand on the strength of their own balance sheet."