CARE downgrades United Western Bank's Tier-II bonds

Rating agency CARE today downgraded the rating for United Western Bank's Rs 114.70 crore Tier-II subordinate bond issues from 'CARE BB+' to 'CARE B+'.

Instruments with such rating are generally classified susceptible to default. While interest and principal payments are being met, adverse changes in business conditions are likely to lead to default, CARE said in a statement.

The rating revision takes into account further decline in capital adequacy ratio of UWB much below the minimum regulatory requirement, as a result of losses suffered during half year ended September 30, 2005, continuing delay in infusion of Tier I capital and weak asset quality.

The small asset size, inability to grow its asset base due to capital constraints, regional concentration of business and vulnerability of investment portfolio to adverse movement of interest rate with resultant adverse impact on the profitability of the bank are other key rating sensitivities.

UWB has drawn an action plan to raise fresh capital through various sources including rights issue to attain the required regulatory level of CAR by March 31, 2006. However, there have been delays in infusion of Tier I capital which is a matter of concern, it said.

The private sector bank's CAR was 4.86 per cent as on March 31, 2005 and further declined to 3.68 per cent as on June 30, 2005, which is below the RBI-stipulated norm of 9 per cent. The CAR has further slipped to 3.15 per cent by the end of September 2005.

The bank filed a draft prospectus with Securitiesd and Exchange Board of India (Sebi) for its Rs 43.04 crore almost two months ago.

It plans to issue 1.79 crore equity share of Rs 10 at premium of Rs 14 each in the ratio of one equity shares for two shares.

The bank said it has approved a roadmap for raising additional capital, including the rights issue. But even after this rights issue, the capital adequacy will not comply and this may trigger mandatory and discretionary actions from RBI.