Union Bank of India has revived a plan to raise funds overseas at a time when most Indian banks are reportedly shying away from the global arena because of adverse market conditions and high interest rates.
The bank last week filed an updated prospectus with the Singapore Stock Exchange for its $2 billion medium term note (MTN) programme. The initial prospectus was filed way back in 2008.
Of the $2 billion limit, Union Bank has so far raised $565 million, through issuances in August 2010 and in January 2011.
The Mumbai-based lender, the seventh-largest public sector bank and 10th largest commercial bank in the country in terms of assets, hasn’t mentioned the coupon rates at which the papers would be issued, which will be decided based on the timing of the tranches and the exact nature of the bonds.
It had earlier appointed Barclays Capital, Citigroup, Deutsche Bank, and Standard Chartered Bank as arrangers to the issue.
An MTN issue allows a flexible placement of bonds in various currencies and with varying maturities on the euro bond market.
The issue proceeds will be used to meet the funding requirements of the bank’s foreign offices, including the Hong Kong Branch.
Among others, Indian Bank, Indian Overseas Bank, Allahabad Bank, Syndicate Bank and even State Bank of India, which in September doubled the size of the planned MTN programme from $5 billion to $10 billion, have also been toying with the idea of an MTN issue. However, rising cost of borrowing in the international market and slowdown in credit demand due to global uncertainties have made them go slow on the issues.
Union Bank’s move could push these lenders to firm up the plans.
The bank’s capital to risk weighted assets, or CRAR, under Basel II norms stood at 12.95% as of March, well above the minimum regulatory requirement of 9%.
However, it needs additional capital to support its growth, rating agency Fitch said in its latest report on the bank.
“Union Bank’s capitalisation is moderate, especially in view of its weak asset quality, low specific NPL coverage and presence of hybrids in Tier I. Capitalisation was supported in FY11 by capital infusion from the government through equity. Nevertheless, the bank’s internal accrual is modest and it would require additional capital to support its growth,” the rating agency has said.
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