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M. Ramesh

Mr S. Balasubramanian

Chennai , March 6

CITY Union Bank does not expect a need for raising capital because of the Basel-II norms.

The century-old bank, headquartered in Kumbakonam, is predominantly into trade finance and 68 per cent of its Rs 2,050-crore advances are accounts less than Rs 1 crore. Advances under Rs 1 crore are classified as "retail" and the applicable risk-weight under Basel-II is 75 per cent, as against 100 per cent now.

Because of this, if the Basel-II norms are applied now, the bank's capital adequacy would go up to 13.6 per cent from 12.4 per cent, the bank's Chairman and Chief Executive Officer, Mr S. Balasubramanian, told Business Line today.

This would offset any increased requirement of capital arising out of `operational risk'. "On the overall, Basel-II will not have much impact on CUB's capital requirements," Mr Balasubramanian said.

CUB's assessment of its Basel-II-related capital requirement is consistent with the findings of an ICRA study. The study, released on March 4, "shows that the regulatory capital allocation for credit risk for Indian banks may decline by nearly 2.4 per cent due to lower risk weight requirements for better-rated credit exposures.

City Union Bank is also confident of being able to raise its networth to Rs 300 crore soon from internal accruals — without having to raise money from the capital market.

As on March 31, 2004, CUB had a networth of Rs 202 crore.

The bank expects to transfer at least Rs 40 crore from the profit and loss account to the reserves this year, which would take its networth to Rs 242 crore.

Ploughed back profits of 2005-06 would take it further to close to Rs 300 crore, Mr Balasubramanian said. But if the RBI wants the bank to get to Rs 300 crore earlier, "we may go in for a rights issue."

Commenting on the performance in the current year, Mr Balasubramanian said that the bank's net profit might be around last year's levels.

As of December 31, 2005, CUB's net NPAs stood at 5.12 per cent of its advances (gross-8.98 per cent) but the bank expects to end the year with 4 per cent.

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