Govt gets moving on United Bank of India
Starts daily monitoring of recovery efforts, wants things to get better before lender seeks any more capital-Business Standard
Manojit Saha & Vrishti Bniwal | New Delhi
February 25, 2014
The finance ministry has begun quick action to get troubled United Bank of India (UBI) to again stand on its feet as soon as possible. It has said capital infusion will come only after the lender shows improvement in asset quality.
The ministry has asked the top UBI executives to furnish a bad loan recovery status on a daily basis.
According to Rajiv Takru, secretary, financial services, UBI has reduced its non-performing loans by Rs 1,842 crore this financial year; in the first one and half months of the current quarter, there was a sharp reduction of Rs 600 crore.
“I told them (UBI management) I want a daily report. That shows how serious we are…we don’t do it for other banks,” Takru told Business Standard.
UBI’s losses more than doubled in the third quarter, to Rs 1,238 crore on the back of a 500 per cent increase in provisioning to Rs 1,783 crore. The chairperson and managing director sought voluntary retirement last week, almost a year before she was scheduled to superannuate, citing health reasons. The government is yet to appoint a new chief executive; Takru said it would be done in about two weeks. The ministry says it expects UBI to show a profit in the fourth quarter if recovery continues to be strong. On capital infusion, Takru said the bank has to show the will, before expecting any funds from the government.
“You recover as much of NPA as you can. Show us that you are serious. Stop lending to big corporates at the moment, as chances of slippages are higher; focus on the priority sector. Then, in the month of June, we will see what is required (capital),” he said.
UBI's capital adequacy ratio fell to 9.01 per cent (Basel-III norms) by the end of December 2013. The Tier-I ratio was 5.59 per cent, well below the regulatory requirement of 6.5 per cent which banks need to maintain from March 2014 under Basel-III.
The government is yet to get the administrative report on UBI, commissioned after the bank’s financial parameters started deteriorating. It might be a combination of factors which resulted in a ballooning of non-performing assets (NPAs), said Takru.
“Perhaps due to manual intervention the NPAs did not get reported. Then, of course, there are counter-allegations, of things that are reported as NPA which were actually not.”
Elaborating on the latter point, he said overdue farm loans should be treated as NPA after one year, so when the system detects these, it needs to be manually adjusted. “This supposedly was missed out. This should not have happened. So, what happened is, NPAs got over-reported, this is what we have been told,” he said.
The ministry has asked the top UBI executives to furnish a bad loan recovery status on a daily basis.
According to Rajiv Takru, secretary, financial services, UBI has reduced its non-performing loans by Rs 1,842 crore this financial year; in the first one and half months of the current quarter, there was a sharp reduction of Rs 600 crore.
“I told them (UBI management) I want a daily report. That shows how serious we are…we don’t do it for other banks,” Takru told Business Standard.
UBI’s losses more than doubled in the third quarter, to Rs 1,238 crore on the back of a 500 per cent increase in provisioning to Rs 1,783 crore. The chairperson and managing director sought voluntary retirement last week, almost a year before she was scheduled to superannuate, citing health reasons. The government is yet to appoint a new chief executive; Takru said it would be done in about two weeks. The ministry says it expects UBI to show a profit in the fourth quarter if recovery continues to be strong. On capital infusion, Takru said the bank has to show the will, before expecting any funds from the government.
“You recover as much of NPA as you can. Show us that you are serious. Stop lending to big corporates at the moment, as chances of slippages are higher; focus on the priority sector. Then, in the month of June, we will see what is required (capital),” he said.
UBI's capital adequacy ratio fell to 9.01 per cent (Basel-III norms) by the end of December 2013. The Tier-I ratio was 5.59 per cent, well below the regulatory requirement of 6.5 per cent which banks need to maintain from March 2014 under Basel-III.
The government is yet to get the administrative report on UBI, commissioned after the bank’s financial parameters started deteriorating. It might be a combination of factors which resulted in a ballooning of non-performing assets (NPAs), said Takru.
“Perhaps due to manual intervention the NPAs did not get reported. Then, of course, there are counter-allegations, of things that are reported as NPA which were actually not.”
Elaborating on the latter point, he said overdue farm loans should be treated as NPA after one year, so when the system detects these, it needs to be manually adjusted. “This supposedly was missed out. This should not have happened. So, what happened is, NPAs got over-reported, this is what we have been told,” he said.
Moody’s warns of capital concerns for India’s banks-LiveMint
Higher capital requirements under the Basel III norms and increasing bad loans would raise concerns for banks
Mumbai: Global rating agency Moody’s Investors Services on Monday warned that Indian banks will require more capital than what the government has allocated in last week’s interim budget, especially in the context of higher capital requirements under the Basel III norms and increasing bad loans that would require banks to set aside more money to cover such loans.
“Last Monday, India’s government unveiled its interim budget for the fiscal year starting in April, allocating Rs.11,200 crore ($1.8 billion) for capital injections into public sector banks,” Moody’s said.
“The allocation is credit negative for public sector banks because it is much smaller than the Rs.25,000-36,000 crore ($4.1-$5.8 billion) that we estimated the banks needed to meet a minimum tier 1 ratio of 8% in the fiscal year ending March 2015…Without sufficient government capital infusions, public sector banks will be challenged to maintain minimum tier 1 ratios of 8%,” Moody’s said.
In addition, a sharp rise in the bad loans of Indian banks will also require them to have higher amount of capital, Moody’s said. Under the current norms, banks need to set aside more money to cover loans if they become bad, which affects their profitability.
“Our estimates assume the banks make adequate provisions to meet a minimum 70% coverage ratio under a range of potential asset-quality outcomes,” Moody’s said.
The agency expects that bad loans will continue to rise at Indian banks in fiscal year ending 2015 .
“Indian public sector banks’ need for significant external capital is a result of an increase in non-performing loans (NPLs) owing to the country’s slowing economy and infrastructure bottlenecks, and profitability that is insufficient for internal capital generation to fund loan growth,’ Moody’s said.
“As of December 2013, rated public sector banks reported an average gross NPL ratio of 4.3% (of total loans), up from 3.4% in March 2013, and we expect them to continue rising in fiscal 2015,“ it added.
Gross non-performing assets (NPAs) of Indian banks rose to Rs.2.4 trillion at the end of December, about 36% up compared with the same period last year.
Among the banks, Kolkata-based United Bank of India is the worst affected with its gross NPAs standing at about 11% of its total loans. The bank is currently under the inspection of the Reserve Bank of India (RBI), which had barred the lender from giving fresh loans, except certain categories due to lower capital adequacy.
On Monday, United Bank announced that it will issue perpetual non-cumulative preference shares (PNCPS) to the government to raise capital.
The bank’s board has given approval to “create, offer, issue and allot by conversion of upto 80000 PNCPS of Rs.1 lakh each into such number of equity shares of Rs.10 each at an conversion price…on preferential basis to government of India in one or more tranches,” it said in a release to exchanges.
The United Bank board has further approved issuance and allotment by conversion of PNCPS up to 110 million equity shares of Rs.10 to the president of India by March, the release said.
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