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UTI Bank plans private placement

Mar 7, 2000

UTI Bank is planning on raising Rs 1 bn of tier II capital via the private placement market. This is UTI Bank's first tier II capital issue and will increase its capital adequacy ratio from 11.64% as on 31st March'1999 to 12% by March'2000. The issue size is Rs 750 m with a green shoe option of Rs 250 m. The maturity for these tier II bonds will be a maximum of 90 months and the coupon rate will be decided by a book building process. The increase in capital adequacy is necessary for the bank as it needs the funds for its aggressive expansion plans and technology.

UTI Bank plans to increase its branch network from 45 currently to more than 100 branches in the next 18 months, and they have applied to RBI for the licenses of these branches. It also has plans of installing 200 more ATMs to its existing 59 ATMs.

UTI Bank has also recently announced its internet plans and it is in the final stages of tying up with Global Telesystems for its payment gateway to enable its e-commerce transactions. Earlier when the bank announced its internet plans there was no mention of a payment gateway.

The other two banks to have launched internet banking are HDFC Bank and ICICI Bank. HDFC Bank has recently announced its tie-up for a payment gateway with Singapore Telecom for its e-commerce activities. ICICI Bank has entered into a joint venture with Satyam Infoway for the online distribution of retail banking products on the internet.

This aggressive stance of UTI Bank of branch expansion, internet can be seen as its aim to get over from the public sector stodgy image into a proactive private sector bank.

Market View:
UTI Bank has not been viewed favourably by the market as it has been promoted by a public institution. However it is trying to change this image by being aggressive on the technology front like other private sector banks. If it successful in its attempt to change itself the stock market could re-rate the bank.

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