United Bank reports Rs.2,000 crore in net recovery-LiveMint
The recovery has led RBI to dilute some restrictions previously imposed on the Kolkata-based lender
Kolkata: After years of under-stating non-performing assets (NPAs), executives of United Bank of India have been on an overdrive since January to improve asset quality and recovered on average Rs.25 crore a day for the past three months, a key official said.
The result: around Rs.2,000 crore in net recovery in the March quarter alone, despite so called slippages, or new loans turning NPAs. This, in turn, has led the Reserve Bank of India (RBI) to dilute some restrictions previously imposed on the lender’s operations.
Yet, for at least two more years, United Bank has to keep a tab on its NPAs and make sure it doesn’t go up again, according to Deepak Narang, one of its executive directors. The bank will be circumspect with lending and focus on “risk mitigation”, he said.
The fresh slippage in the March quarter was largely on account of the macroeconomic scenario and not because of deliberate suppression of NPAs as was the case previously, according to a finance ministry official who did not want to be identified.
As its management stepped up vigilance on sticky loans, the bank reported at the end of December Rs.8,546 crore of gross NPAs, up from Rs.4,001 crore six months earlier. For the December quarter, United Bank reported a net loss of Rs.1,238 crore as gross NPAs climbed to 10.8% of its total advances.
“The (bank’s) management led from the front in the recovery drive and gave a clear message to the staff: deliver or perish,” said Narang. While those who lived up to the challenge were rewarded, those who didn’t deliver were transferred, he added.
“We have redeemed our promise to deliver,” said the finance ministry official cited above. This person was on the team that oversaw the Kolkata-based lender’s drive to recover bad loans. During the past three months, the finance ministry kept a day-to-day watch on loan recovery by the beleaguered bank.
“The finance ministry helped us deal firmly with some borrowers,” Narang said, adding that even the West Bengal government helped recover some money from large borrowers. But he refused to disclose specific steps taken by the two governments to help United Bank.
Taking note of the recovery, RBI has diluted some restrictions imposed on the operations of the Kolkata-based lender. With the approval of its board, United Bank can now disburse more than Rs.10 crore if the loans were sanctioned before the banking regulator stopped it last November from lending more than Rs.10 crore to any single borrower.
The bank has also been allowed to restructure some sticky loans and take part in multi-bank corporate debt restructuring with “case-to-case approval”, Narang said. Previously, RBI had imposed a complete moratorium on restructuring of loans by United Bank.
However, the bank continues to face slippages of small loans of less thanRs.10 lakh. In the March quarter too, such loans to the tune of Rs.200-300 crore turned sticky, according to Narang. United Bank has traditionally had a problem with small loans turning NPAs.
At the end of December, when the problem of substandard assets reached its peak, the bank had around Rs.2,500 crore of substandard assets in the sub-Rs.10 lakh category. Most of these loans were given to small businesses or under government-backed schemes.
Political interference was a big challenge to the recovery of such NPAs,Sanjay Arya, another United Bank executive director, had said in an interview in February.
Before celebrating the increase in loan recovery, it is important to determine why the NPAs rose in the first place, said Daljeet Singh Kohli, head of research at IndiaNivesh Securities Pvt. Ltd.
“Some of these recoveries would be borderline cases that just get reported as NPAs due to technicalities,” Kohli said. “They are eventually recovered. Pressure from the finance ministry would also have led to recoveries being sped up. But it is important that the bank management remains vigilant because ultimately it is bad management that leads to NPAs, the system does not create NPAs on its own.”
RBI has been concerned about a surge in bad loans in the banking system in the face of slower economic growth. Gross NPAs of India’s 40 listed banks surged to Rs.2.43 trillion in December, a 36% jump from a year earlier, while restructured loans at the end of March rose to an estimated Rs.5-6 trillion. Together, such loans made up about 12% of total loans given by Indian banks as of the quarter ended December.
After plunging to a 52-week low of Rs.23.40 on BSE on 21 February, United Bank’s shares have been recovering. In the past one month, they have gained around 11.4%. The shares closed at Rs.30.90 each, down 0.48%, on Monday.
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