UBI's Q3 loss may test govt approach to Basel III norms: Fitch

Fitch Ratings today said recent losses incurred by United Bank of India could result in its capital ratios falling below the required minimum and could potentially test India's approach to Basel III norms.
"This is likely to be the first instance within Asia since the implementation of the Basel III framework. It is also important at this time because a number of Indian banks - mostly state-owned, are considering raising fresh regulatory capital in the international market, in light of the capital pressures on the sector," it said in a release.
Fitch said the authorities face a dilemma and their response could set a credit precedent.

"Existing holders of UBI's outstanding legacy Basel II Tier 1 and Upper Tier 2 capital instruments will face the prospect of automatic coupon deferral as per RBI regulations if the total capital ratio, which is currently borderline at 9 per cent, were to be breached."
It further said that the compounding losses could exacerbate the risk for investors.
Government has already injected Rs 700 crore into UBI this financial year.

Kolkata-based UBI's credit profile has weakened sharply, and has been worse than at other state-owned banks.
Accelerating asset-quality problems raised its gross NPA ratio to 10.8 per cent in December, up sharply from 5.6 per cent in June, 2013.

UBI reported a net loss of Rs 1,238 crore in the third quarter ended December 31, 2013, against a net profit of Rs 42 crore in the corresponding period of the previous fiscal.
The net loss for the first nine months of this fiscal stood at Rs 1,683 crore as against a net profit of Rs 361 crore in the similar year-ago period.
The gross NPAs (non-performing assets) at the end of the third quarter was 10.82 per cent and net NPA, 7.44 per cent.