Union Bank of India raises Rs.2,000 crore to shore up capital

Banks are approaching the markets to raise bonds to boost their capital base after halting it for about a year

Under Basel III norms, a bond holder also must bear the risk like a stock holder, so that the bank continues to function instead of being forced to pay the bond holder, and this makes the bond purchase less assuring. Photo: Indranil Bhoumik/Mint

Mumbai: Union Bank of India on Friday said it has raised additional capital of Rs.2,000 crore through Basel-III compliant bonds.

Basel III is the latest internatioal accounting norms for banks.

Indian banks have just started approaching the markets to raise bonds to boost their capital base after halting it for about a year.

Under traditional accounting practice, a bond holder gets preference over equity holder at the time of liquidation of the company. However, under Basel III norms, a bond holder also must bear the risk like a stock holder, so that the bank continues to function instead of being forced to pay the bond holder, and this makes the bond purchase less assuring.

Bank of India in September raised Rs.1,000 crore of such bonds through the domestic market and in June, United Bank of India raised Rs.500 crore through such bonds. More such bond sale can be expected soon.

The bonds by Union Bank have been given the highest rating by Crisil Ltd. The 10-year bonds carry a coupon of 9.80%.

NITESH KUMAR

PGDM 1ST

LIVEMINT.COM