UTI Bank discounted

UTI Bank was discounted by the market after the bank announced that it was privately placing shares at a price of just Rs 42.75 per share.

The current market price of the scrip is higher at Rs 43.10, even after it slipped 2.71% since Monday. By 10:25 IST, a total of 16,303 UTI Bank shares changed hands on BSE. The most recent trend in the scrip has been outstanding, as it jumped 24% to Rs 44.30 from Rs 35.75 in the three sessions between 26 February and 3 March 2003.

Towards close on Monday, UTI Bank's board cleared a proposal to raise about Rs 164 crore through a preferential allotment of shares to a group of investors.

The board of directors of UTI Bank decided to issue and allot 3,83,62,834 fully paid-up equity shares of a face vale of Rs 10 each at a price of Rs 42.75 per share (inclusive of a premium of Rs 32.75 per share) to Life Insurance Corporation of India (1,84,00,000 equity shares), Citicorp Banking Corporation, Bahrain (88,30,540 equity shares), Chryscapital I, LLC, Mauritius, (88,30,540 equity shares) and Karur Vysya Bank (23,01,754 equity shares).

The board also decided to increase the authorised share capital of the bank from Rs 230 crore (Rs 2.3 billion) to Rs 300 crore (Rs 3 billion) and alter the capital clause of the Memorandum and Articles of Association, accordingly.

Marketmen were hoping that the placement of shares would be at a higher price than the market price. With that not happening, players are offloading in the stock. However, analysts do not fail to point out that the placement of shares is indeed beneficial, as the infusion of funds will maintain the growth momentum of the bank.

With the enhanced capital structure, parent Unit Trust of India's holding will get lowered to 33.6% from 40.3%. CDC's holding will be 20.1% (24.2%) and GIC and other PSU insurers will hold 7.6% (9.2%).

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).

Another advantage from the placement is that the low capital adequacy ratio of UTI Bank could improve . It will help the bank to release more funds to retail customers. The bank's CAR stands at 9.8% as against the stipulated 9% by Reserve Bank of India.

UTI Bank continues to focus on its three main drivers of growth i.e. net interest income, thrust on retail banking and fee-based income.

For the third quarter ended 31 December 2003, UTI Bank reported a 44% rise in net profit to Rs 51.50 crore on an 80% increase in net interest income to Rs 91.50 crore.