United Bank Plans Asset Reconstruction Company

United Bank of India is gearing up to set up an asset reconstruction company (ARC) to take care of its non-performing assets(NPAs). The bank's legal department has been asked to examine various options for the consideration of it. Bank sources say that the ARC will be set up as a wholly-owned company of the bank. However, equity participation at a later stage by other companies or professional groups having experience in similar operations cannot be ruled out.

UBI chairman Biswajit Chowdhury was part of an expert group which had recommended for bank-specific ARCs for taking over the NPAs. The government has accepted this principle as reflected in the budget speech of finance minister Yashwant Sinha.

UBI has gross NPA of over Rs 1,200 crore in 1997-98, while net NPA came down to around 12.5 per cent from 19 per cent in 1996-97.

Broad indications of the annual results have shown that the bank improved further its position and has poised for a net profit in 1997-98, though the profit will be marginal. However, it is gathered that UBI will have operating profit of about Rs 50 crore in the year under review. Though the audited statement of accounts will be finalised shortly for placement before the board of directors, preliminary results have shown that in 1997-98 deposits grew by 16 per cent to reach about Rs 12,300 crore.

Loan, advances and subscriptions to corporate debentures have also gone up by about Rs 800 crore, indicating a growth rate of 15 per cent. Credit growth itself was 10.5 per cent.

The bank has to keep a close watch on its capital adequacy ratio (CAR) which remains marginally higher at 8.2 per cent than the stipulated minimum CAR of eight per cent. In a bid to remain within the stipulated CAR, the bank is aware that it has to keep it at nine per cent immediately after the next century begins.

This was made clear in the recent central budget. The ARC formation may reduce the bank's capital base as the new company will have to be funded by UBI itself. Moreover, the bank has been experiencing shortfall of capital for which it had sought recapitalisation fund from the Centre.

As things stand now, UBI will have to meet any shortfall of capital by enhancing the Tier-II base through issuance of bonds.

But this decision will await the financial results of the bank which will be finalised shortly.