Manish Sharma

United Bank of India’s (UBI) public offer opened on Tuesday with 50 million shares being sold to the general public comprising 15 per cent of the post-issue paid up capital. With a price band of Rs 60-66, the issue will fetch the bank Rs 3 bilion at the lower band and Rs 3.3 billion at the upper end of subscription. Since the bank is adequately capitalized, it would mainly utlilise the public money to scale up its operations, besides shedding its regional image. Unlike other mid-size banks, UBI doesn’t have a diversified pan-India presence. Out of its 1,484 branches, 955 are located in eastern India and 256 in north eastern India. Going ahead, UBI plans to increase its credit portfolio by focusing on the retail and corporate segments.

With a balance sheet size of Rs 700 billion, it is one of the country’s smaller public sector banks (PSBs). It has maintained a healthy loan book over the past five years of operation, posting a compounded annual growth rate (CAGR) of 34.8 per cent during FY2004-09. But, substantial exposure to loans and advances has been allocated to agriculture, and micro and small enterprises, which are included in “priority sectors”. As of 30 September 2009, priority sector credit constituted 36.02 per cent of the adjusted net bank credit and loans. Perhaps, that explains the fact the bank has a relatively low net interest margin (2.4 per cent for the half year ended September 2009) compared with most peers.

On the positive side, UBI has maintained its CAR (Capital Adequacy Ratio) at 10.37 per cent (Basel I) and 12.93 per cent (Basel II) as of 30 September 2009. This is way above the stipulated provision of 9 per cent mandated by the RBI (Reserve Bank of India) in relation to the total risk weighted assets. Similarly, the gross NPAs (Non-Performing Assets) represent 2.48 per cent of its gross advances and 1.39 per cent of its total assets.

However, low interest margins, skewed focus towards agriculture and small manufacturers and its eastern focus would not inspire confidence among the investor community. Nevertheless, with a book value of Rs 94 at the upper end of the spectrum (Rs 66), the price-to-book value (P/BV) stood at 0.7. And with a price to earning multiple at 1.3X, the stock is attractively priced at a discount for retail investors.

Indiabiznews, February 23, 2010