UBI aims to reduce bad loans by Rs 2,000 crore

Plans cost control, loan recoveries to improve Q4 earnings

State-run United Bank of India (UBI), which reported net losses in the past two quarters, has said the bank plans to reduce its non-performing assets (NPAs) by at least Rs 2,000 crore in the next few months.

“After a threadbare discussion with field functionaries, the top management expressed confidence in upgrading and reducing at least Rs 2,000 crore of non-performing assets through intensive recovery drive, which will substantially improve its working results in the March quarter,” the Kolkata-based bank said in a notice to the BSE on Tuesday.

The meeting was held on Sunday at the bank’s headquarters here to discuss corporate strategies for improving the lender's financial performance. A “concrete action plan” was also prepared, the bank added.

The statement appears to have restored investors’ confidence a bit, as the bank’s shares gained about three per cent during intra-day trade on Tuesday. The shares, however, pared the early gains and ended only 0.6 per cent up from the previous close.

UBI’s share price has fallen 66 per cent in the past 12 months, as the bank battled a crisis of confidence with mounting losses, deteriorating asset quality and an alleged dispute between senior management executives. During October-December 2013, the net loss more than doubled from a quarter earlier to Rs 1,238 crore, as it had made more provisions for NPAs.

Fresh slippages topped Rs 3,000 crore, expanding the lender’s gross NPAs to Rs 8,546 crore. The gross bad loan ratio increased by 640 basis points to 10.82 per cent, while the net NPA ratio deteriorated by 522 basis points to 7.44 per cent at the end of December 2013. The lender probably has the worst asset quality in the sector.

A few months ago, the Reserve Bank of India (RBI) had ordered a forensic audit after the bank reported a loss of Rs 489 crore in the July-September quarter. Pending the audit’s completion, the loan sanctioning power of the bank was restricted to Rs 10 crore. The audit report, given a few days earlier, pointed to a lax credit appraisal process at UBI that led to loans becoming non-performing.

The crisis also raised doubts on the bank’s ability to meet the new Basel-III capital rules. The bank’s capital adequacy ratio had crashed to 9.01 per cent at the end of December 2013. Tier-I capital adequacy ratio was at 5.59 per cent, which was well below the regulatory requirement of 6.5 per cent, which banks need to maintain from March 2014.

The top management, however, remains positive. “The bank recently reduced the interest rate on deposit and increased the base rate (or the minimum lending rate) in order to improve its bottom line. Several cost cutting measures have also been envisaged. The top management is confident that all these measures can turn around the bank in the March quarter,” the state-run lender said.