BOI, United Bank to raise up to ~1,500 crore via bonds

Banks are tapping the bond market to shore up capital adequacy under Basel-III norms ahead of the end of the financial year second quarter in two weeks.

Two public sector lenders, United Bank of India and Bank of India (BOI), are raising up to ~1,500 crore through tier-I and tier-II bonds. Kolkata-based United Bank of India is raising up to ~1,000 crore through the bonds (~500 crore in each tier). Bank of India is raising up to ~500 crore via Tier-I bonds.

Both banks are facing elevated pressure on asset quality and profitability. They have to set aside higher amounts as provision for bad loans, as growth in interest income tapers due to tepid credit demand. CRISIL has assigned “BBB+” rating to United Bank’s ~500-crore Tier-I bonds and “AA-/Negative” rating to the TierII bonds. The outlook on both the instruments is negative on account of weakness in the bank’s asset quality and profitability.

The ratings continue to reflect strong expectation of support from the Government of India, the majority stakeholder. Ratings for United Bank also factor in healthy resource profile. Its current and savings account deposits (CASA), as a proportion of overall deposits, reached a high of 47.8 per cent as on June 30, 2017, from 43.3 per cent a year before, CRISIL said. The lender’s gross non-performing assets (NPAs) remained elevated at 17.17 per cent in June 2017 (14.29 per cent as on June 2016), which is in line with the industry trend.

United Bank’s capital adequacy ratio (CAR) stood at 10.35 per cent with Tier-I capital of 8.54 per cent as on June 30, 2017. India Ratings has assigned “A+” rating for Bank of India’s Tier-I bonds (~500 crore). The rating on BOI’s bonds is supported by the bank’s stand-alone credit profile, along with its ability to service coupons and manage principal writedown risk over the Basel-III transition period. BOI’s asset quality has been under pressure since FY16, in line with that of most PSBs. BoI reported a loss in FY17.

The provisioning bill would remain high on two counts — the aging impact of non-performing assets and additional requirement pertaining to accelerated provisioning for cases taken to National Company Law Tribunal for insolvency resolution.

BOI’s gross NPAs stood at 13.05 per cent at the end of June 2017.

Its capital adequacy ratio (CAR) was at 12.38 per cent, with Tier-I capital of 9.02 per cent in June 2017.

Both banks are facing elevated pressure on asset quality and profitability. They have to set aside higher amounts as provision for bad loans, as growth in interest income tapers due to tepid credit demand