Union Bank of India soared on Monday amid high volumes, after the bank unveiled its IT initiatives.
The stock of the state-run bank jumped by 8.3% to Rs 24.15 on the BSE in early-afternoon trades, close to the day's high of Rs 24.20. A higher volume of 1.11 million shares was recorded on the counter in the first two-and-half-hours of the session.
A host of other public sector undertaking bank stocks like Canara Bank (up 6.8% to Rs 62.80), Dena Bank (up 6.5% to Rs 13), Andhra Bank (up 5.6% to Rs 26.15), Punjab National Bank (up 5.4% to Rs 80.85), Bank of Baroada (up 4.5% to Rs 71.45) also surged. However, Union Bank of India was the top gainer.
The UBI scrip has turned volatile in recent sessions, after surging from its mid-October 2002 low on sustained buying, with the passing of the Securitisation Bill in Parliament on 22 November 2002 aiding the rally. From a low of Rs 14.70 on 17 October 2002, the scrip spurted 90% in slightly over 3 months to hit an all-time high of Rs 27.95 on 21 January 2003. From that level, the scrip amid volatility shed 20.2% in less than a month to a recent low of Rs 22.30 on Friday (14 February 2003).
The UBI scrip surged today after the bank announced its information technology initiatives. The bank has interconnected its twelve branches across centres like Mumbai, Delhi and Bangalore. The system will enable Internet banking, tele-banking and enable the delivery of a host of IT-enabled products. The bank is confident of implementing the next phase of IT initiatives, which includes 100 automated teller machines by March 2003, going up progressively with 500 CBS (Core Banking Solution for Anywhere Banking) branches and 1,000 ATMs within 24 months.
However, the Securitisation Act remains the major reason for the optimism in PSU bank scrips. The Act has proved to be a solid leverage for the banking sector as it paves the way for recovery of sticky assets. Hitherto, archaic laws tilted in favour of borrowers made it difficult for banks and financial institutions to recover debts. According to the ministry of finance, non-performing assets of PSU banks in India range between Rs 70,000 crore (Rs 700 billion) and Rs 100,000 crore (Rs 1000 billion). NPAs of banks and financial institutions account for over 5% of the country's gross domestic product.
Under the Securitisation Act, lenders can send notices to defaulters giving them a period of 60 days. If the borrower fails to pay during that period, the Act allows banks to take possession of defaulters' properties and also the personal properties of promoters/directors pledged with the bank. The Act is a significant legislative initiative to address the malaise of mounting NPAs. Further, it paves the way for setting up of asset reconstruction companies to recover NPAs. Importantly, the Act has created the right environment for the lending business, according to analysts.
In early February 2003, UBI inked an agreement with the New India Assurance Company to market the latter's non-life insurance products in its quest to become a single-point provider of financial services to its customers.
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