RBI says United Bank problem one of governance, not ownership

Reserve Bank has ordered a forensic audit to improve the working of all public sector banks

Stating that issues at United Bank of India (UBI), which is struggling with a high level of asset stress, are due to poor corporate governance practices, the Reserve Bank today said it has ordered a forensic audit to improve the working of all public sector banks.

"All issues point towards corporate governance. We have written to the government to take a set of steps to improve corporate governance and it is not only for UBI but the entire banking system as a whole," outgoing deputy governor K C Chakrabarty told reporters.

The government owns 26 banks, which account for over three-fourths of the banking industry and most of them are facing an unprecedented rise in bad loans.

Bad loans and restructured loans as of the December quarter accounted for over 10% of the system. Banks, mostly PSBs, recast close to Rs 1 trillion of bad loans in the previous financial year, taking the total corporate debt restructuring book to over Rs 38 trillion so far.

Most of the state-run banks have higher stress on asset quality than their private sector competitors. Chakrabarty, however, added that ownership does not affect or limit the performance of a bank.

"We have not said so and we don't believe that ownership affects the performance of a bank," he said.

The case of UBI, which witnessed unprecedented events such as the resignation of its chairperson and managing director Archana Bhargava after the NPAs ballooned to over 10%, is "neither a shock nor surprise to RBI," said Chakrabarty, who is serving his notice period.

Chakrabarty said the RBI commissioned a forensic audit of the bank's books after Bhargava's letter saying there might be some unrecognised non-performing assets.

Without giving any details, he added those fears have been found to be true in the forensic audit.

"We are not unnecessarily perturbed for one particular bank, UBI, it is because of certain initiatives by the bank management that we had to intervene," he said.