Govt gets moving on United Bank of India

Starts daily monitoring of recovery efforts, wants things to get better before lender seeks any more capital

The finance ministry has begun quick action to get troubled United Bank of India (UBI) to again stand on its feet as soon as possible. It has said capital infusion will come only after the lender shows improvement in asset quality.

The ministry has asked the top UBI executives to furnish a bad loan recovery status on a daily basis.

According to Rajiv Takru, secretary, financial services, UBI has reduced its non-performing loans by Rs 1,842 crore this financial year; in the first one and half months of the current quarter, there was a sharp reduction of Rs 600 crore.

“I told them (UBI management) I want a daily report. That shows how serious we are…we don’t do it for other banks,” Takru told Business Standard.

UBI’s losses more than doubled in the third quarter, to Rs 1,238 crore on the back of a 500 per cent increase in provisioning to Rs 1,783 crore. The chairperson and managing director sought voluntary retirement last week, almost a year before she was scheduled to superannuate, citing health reasons. The government is yet to appoint a new chief executive; Takru said it would be done in about two weeks. The ministry says it expects UBI to show a profit in the fourth quarter if recovery continues to be strong. On capital infusion, Takru said the bank has to show the will, before expecting any funds from the government.

“You recover as much of NPA as you can. Show us that you are serious. Stop lending to big corporates at the moment, as chances of slippages are higher; focus on the priority sector. Then, in the month of June, we will see what is required (capital),” he said.

UBI's capital adequacy ratio fell to 9.01 per cent (Basel-III norms) by the end of December 2013. The Tier-I ratio was 5.59 per cent, well below the regulatory requirement of 6.5 per cent which banks need to maintain from March 2014 under Basel-III.

The government is yet to get the administrative report on UBI, commissioned after the bank’s financial parameters started deteriorating. It might be a combination of factors which resulted in a  ballooning of non-performing assets (NPAs), said Takru.

“Perhaps due to manual intervention the NPAs did not get reported. Then, of course, there are counter-allegations, of things that are reported as NPA which were actually not.”

Elaborating on the latter point, he said overdue farm loans should be treated as NPA after one year, so when the system detects these, it needs to be manually adjusted. “This supposedly was missed out. This should not have happened. So, what happened is, NPAs got over-reported, this is what we have been told,” he said.