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Govt plans UBI equity conversion to bolster buffers

The government plans to convert a $ 46 million investment in United Bank of India (UBI) into equity to bolster capital buffers at a lender with the highest soured debt ratio in the country. The shares jumped to the highest in almost a year.

Perpetual non-cumulative preference shares that the government holds in UBI will be converted into common equity to boost capital adequacy ratios, Sanjay Arya, an executive director at the bank, said in a June 4 telephone interview. The Kolkata-based lender is trying to complete the transaction by June 30, he said.

The conversion would lift the bank’s capital adequacy ratio, which was at 9.81 per cent as of March under Basel-III rules, closer to the 12 per cent required by the government. The bank’s capital buffer falling below nine per cent would trigger delayed coupon payments for holders of its Basel-II-compliant Tier-1 and Upper Tier-2 bonds under Reserve Bank of India regulations, Fitch Ratings said in February.

“Investors in the lender can heave a sigh of relief,” Vishal Narnolia, a Mumbai-based banking analyst at SMC Global Securities, said. “The bank’s capital adequacy ratio will rise along with the government’s share holding.” UBI shares lender’s stock climbed 2.4 percent to 54.05 rupees at 1:20 p.m. in Mumbai, the highest intraday level since June 18, 2013. The stock gained 3.5 percent in the past year, lagging behind the 25 percent climb in the 12-stock S&P BSE Bankex Index.

United Bank reported a profit of 4.7 billion rupees in the three months to March 31 after posting a loss of 12.4 billion rupees for the December quarter. Gross nonperforming loans as a percentage of total lending stood at 10.47 percent in March, exchange filings showed.

The Indian government owns 88 percent of United Bank, according to data compiled by Bloomberg. The government will consider investments in the bank to boost its risk buffers, Rajiv Takru, the former banking secretary at India’s finance ministry, said in February.

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