Back in the black, United Bank of India aims PCA framework exit by Q2FY20

United Bank of India, which reported a turnaround in the March quarter after seven successive quarters of losses, expects to come out of RBI's prompt corrective action (PCA) framework by Q2 of this financial year. 

On Monday, the bank posted a net profit of Rs 95.18 crore for Q4 of FY19, against a net loss of Rs 261 crore in the same period of the last financial year. In Q3 of FY19, the bank had posted a net loss of about Rs 1,139 crore.

“The worst period for the banking sector is over. We should be able to bring down the gross NPA (non-performing assets) to 8-9 per cent, and net NPA to 3-4 per cent by the end of this financial year,” Ashok Kumar Pradhan, MD & CEO of United Bank of India said in a press meet on Tuesday.

On being asked about a timeline to come out of PCA, Pradhan said, “We should be able to come out of PCA by Q2 of this financial year.”

Gross non-performing assets (NPA) of the bank, as a percentage of total lending, stood at 16.48 per cent in the last quarter, against 24.10 per cent in the same period of the previous financial year. NPA stood at 8.67 per cent in the last quarter.

One of the reason behind the turnaround was robust recovery in the last financial year. The bank went for sale of assets for written off accounts, and one-time settlement in other cases. Thus, it could recover a total of about Rs 6,000 crore last financial year.

Further, the bank was also successful in containing fresh slippages, which was about Rs 8,000 crore in FY18. Fresh slippages reduced to about Rs 2,500 crore in FY19. Operationally, the bank has been rationalising unvialble bank branches, which came down from about 191 in 2017 to nearly 33 at present.

“We majorly focused on recovery of written-off assets. We could recover around Rs 343 crore last financial year through recovery from written off assets alone, against about Rs 107 crore in the previous financial year, which was a major contributor to profitability,” according to Pradhan.

The bank is now faced with the task of reducing government shareholding of 96.83 per cent to 75 per cent by August 2020, to meet Sebi regulations. The bank has requested the government to divest its stake, said Pradhan. Further, the bank is planning to raise about Rs 700-800 crore through QIP (qualified institutional placement) by Q3 of this fiscal. This apart, it is also looking to raise about Rs 100-150 crore through ESPS (Employee Share Purchase Scheme).

Risk in NBFC sector

While the banking sector would mark a turnaround this year, the NBFC (non-banking financial companies) sector is likely to create problems.

“We have to keep a close watch on NBFCs, and banks have to be careful in lending to the sector. Few NBFCs could be in difficulty because of asset and liability mismatch and some of them are already showing stress,” Pradhan said on the sidelines of a press meet today.

Few days back, Corporate Affairs Secretary Injeti Srinivas had said the NBFC sector was in the face of an imminent crisis due to issues like credit squeeze, over-leveraging, excessive concentration, massive mismatch between assets and liabilities among other reasons.