UBI slashes CD issue, sees CARE downgrades

Amid pressure to control interest expenses, United Bank of India (UBI) has slashed its certificates of deposits (CDs) programme from Rs 20,000 crore to Rs 3,177 crore.

Meanwhile, rating agency CARE has downgraded the CDs from ‘A1+’ to ‘A1’. It also cut the rating on the tier-II capital bonds and perpetual bonds issued by the bank from ‘AA-’ to ‘BBB+’.



The downgrades factor in the continued and higher-than-expected deterioration in profitability and asset quality. The sharp revision in the ratings on bonds was due to deterioration in the bank’s capital adequacy ratio, CARE said in statement.

Sanjay Arya, executive director of UBI, said the bank wasn’t taking high-cost deposits and had reduced bulk deposits from Rs 24,000 crore in September to Rs 16,000-17,000 crore.

For the December 2013 quarter, the bank had posted a net loss, the second consecutive quarterly loss. Its net loss more-than-doubled from Rs 489.48 crore in the September 2013 quarter to Rs 1,238.07 crore in the December quarter.



The share of low-cost deposits---current account and savings account deposits---declined from 39.98 per cent in March 2013 to 35.58 per cent at the end of 2013. However, the cost of deposits, which rose from 7.22 per cent in March 2013 to 7.44 per cent in September, fell to 6.74 per cent at the end of December.

Arya said the bank wanted to control interest expenditure and improve the margins in the quarter ending March 2014.

In December 2013, the bank’s gross non-performing asset (NPA) ratio deteriorated to 10.82 per cent from 4.24 per cent at the end of March 2013. The net NPA ratio rose from 2.87 per cent to 7.44 per cent during the same period.

According to Basel-III norms, United Bank of India’s overall capital adequacy ratio stood at 9.01 per cent as of December 2013, just above the regulatory benchmark of nine per cent.

On Thursday, the bank stock closed at Rs 24.25 on the BSE, down 0.82 per cent.