Carrot & stick approach behind UBI's strong NPA recovery

Top management got involved in this as sole priority, used all measures available under the rules

Kolkata-based lender United Bank of India (UBI) has scripted a dramatic turnaround, reversing its losses, reducing its non-performing assets and improving its capital adequacy ratio in barely three months. A crisis was averted with the top management deciding to put their entire focus on loan recoveries.

The lender appears to have adopted a carrot and stick approach to recover the money it lent. It offered incentives on repayment of dues and agreed on compromised settlements, but also unsettled defaulters with legal notices and placing them in “wilful defaulters” list.

In one case, UBI sent a team of 15 officers to recover money from a single borrower who defaulted on his loan repayment. The lender also formed an informal partnerships with other banks in identifying borrowers not repaying loans but were servicing credit lines elsewhere.

“We stepped up our recovery efforts, started doing regular follow-ups and became extremely persuasive. It worked. In certain cases, where borrowers were not willing to repay despite being solvent, we initiated legal actions and classified some of them as wilful defaulters. In the fourth quarter, we placed as many as 15 big accounts on the wilful defaulters list,” a senior executive at UBI told Business Standard.

The bank also introduced a one-time-settlement scheme for loans up to Rs 10 lakh, which expired on March 31, to facilitate easy repayment. In certain cases, the bank promised fresh finances if the borrower repaid the dues. The 4,000 business correspondents of the bank were offered incentive – one per cent additional commission – for helping the lender in its recovery efforts.

The lender’s senior management has been monitoring the progress on a daily basis. Each general manager was assigned two to three regions to review the recovery performance. The bank also customised its software platform to ensure that there was no manual intervention in its system and strengthened its credit appraisal process.

The strategy appears to have worked. UBI made cash recoveries of Rs 645 crore in January-March quarter, compared with Rs 130 crore in the corresponding period of the previous year. It recovered money from 164,000 non-performing loan accounts (majority of them small accounts of below Rs 10 lakh) during the quarter. Upgradation of non-performing loans to standard assets reached Rs 1,488 crore during this period. Out of the bank’s 35 regions, 19 reported 30-50 per cent reduction in bad loans while all of them reported at least 20 per cent decline in non-performing assets.

The bank trimmed its bad loans by a “record high” of Rs 2,592 crore against its own internal target of Rs 2,000 crore. It led to a write-back in loan loss provisions and allowed the bank to earn profit of Rs 469 crore after reporting losses for two successive quarters.

However, senior executives say the job is still not finished and the bank will continue to push for loan recoveries in coming months. Despite all its efforts the bank witnessed Rs 1,164 crore fresh slippages during the fourth quarter. “We are targeting nine non-performing accounts worth Rs 1,200 crore. We expect that at least five or six of them, aggregating Rs 600-700 crore, could be upgraded in the current April-June quarter,” Deepak Narang, an executive director at UBI, said.

Senior executives at the bank expect the recovery efforts will lead to Rs 1,600-2,000 crore reduction in non-performing assets in the current financial year. UBI had closed the January-March quarter with Rs 7,118 crore gross bad loans.