UTI Bank firm ahead of results

UTI Bank leaped up 5.64% to Rs 47.75 in mid-morning trades on Thursday as the market anticipates solid results from the company.

The scrip of the private sector bank recorded volumes of over 215,000 shares on BSE by 12:05 IST. It has risen 15.2% from Rs 41.45 on 7 January 2003 to its current levels.

For the third quarter ended 31 December 2002, analysts expect net profit to grow in the range of 28.6-41% to Rs 46-50.5 crore on a 16-35% increase in revenues to Rs 180-210 crore (Rs 1.8-2.1 billion).

Though results will prove encouraging, there's concern over the bank's capital adequacy ratio. The bank has been repeatedly trying to raise funds by decreasing promoter (Unit Trust of India)'s stake with no success.

There have been prior reports that foreign banks were eyeing stake in UTI Bank. It was reported that UTI Bank's investment banker Salomon Smith Barney had received at least six expressions of interest from overseas investors, including AIG, ING Barings Private Equity, DBS Singapore and Chrysalis for the 20% equity stake the private sector bank proposed to put on the block. The deal was expected to materialise by end-December 2002, but so far there's no news on this front.

In September 2001, UTI Bank sold 26% equity stake to two Mauritius-based funds managed by CDC Capital Partners at Rs 34 per share, aggregating Rs 158 crore (Rs 1.58 billion).

Increased foreign stake is purported to be good for UTI Bank. The low capital adequacy ratio of the bank could improve with the placement of shares. It will help UTI Bank release more funds to retail customers. UTI Bank's CAR as on 30 September 2002 stood at 9.7% as against the stipulated 9% by the Reserve Bank of India. The fresh infusion of funds could increase the CAR to 11%, which would help UTI Bank to increase its overall growth as well as bring down UTI's stake to 33-34% from the current 41.7%.

The bank continues to focus on its three main drivers of growth i.e. net interest income, sustained thrust on retail banking and growing fee income.

On 21 December 2002, UTI Bank's board of directors made an allotment of subordinate debt (unsecured redeemable non-convertible debentures) on private placement basis aggregating Rs 93.1 crore (including greenshoe option of Rs 43.1 crore) as Tier-II capital. The debentures have been issued for a period of 69/93/117 months at coupon rates of 8.40%/8.70% and 8.95% per annum.

In September 2002, the board allotted unsecured redeemable non-convertible debentures on private placement basis, aggregating Rs 100 crore (Rs 1 billion) (including green shoe option of Rs 50 crore), to meet the bank's Tier-II capital requirements. The NCDs were issued for a period of 69, 93 and 117 months at the coupon rate of 8.80%, 9.05% and 9.30% per annum, respectively.

UTI Bank had also made an allotment of unsecured redeemable NCDs on private placement basis, aggregating Rs 33.5 crore (including a green shoe option of Rs 20 crore). The bonds were issued for a period of 63 months at the coupon rate of 9.30% per annum.

For the second quarter ended 30 September 2002, UTI Bank achieved good growth despite a macroeconomic environment where credit off-take was modest and liquidity overhang brought interest rates and spreads down. It registered a 43% rise in net profit to Rs 44.17 crore as compared to Rs 30.95 in the corresponding period last year. Total income increased by 32.6% to Rs 485.73 crore, from Rs 366.25 crore in second quarter 2001.

As on 31 September 2002, the public and domestic institutions held 14.04% and 2.36% stake in the bank, respectively.