Trapped in bad loans, UBI blames it on Infy’s Finacle

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The Kolkata-headquartered United Bank of India (UBI) on Wednesday bla­med its software system sourced from Infosys for failing to recognise non-performing assets (NPAs), leading to under-reporting of bad loans. The lender said it ran its core-banking platform on Finacle, an Infosys product.

The bank has been fighting a sudden spurt in bad loans prompting the RBI to order a forensic audit by an audit firm.

“The core banking system (CBS) of the bank is based on Finacle used by many other banks. The system has inherent deficiencies to correctly identify NPA in case of certain categories of borrowers like kisan credit cards and restructured accounts, cash credit and overdraft overdrawn continuously for more than 90 days,” the bank said in a filing to the stock exchanges.

It said the deficiencies in the software continued. “NPA generation through the system showed a large number of standard accounts as NPAs and several NPA accounts as performing assets in the September and December quarters of 2013,” the bank claimed.

The Kolkata-based lender reported 194 per cent rise in gross NPA at Rs 8,546 crore in the December quarter. The gross NPA had risen to Rs 6,285.89 crore at the end of September 2013 from Rs 2,417.73 in the year-ago period. It had Rs 2,963.8 crore of bad loans on March 31, 2013. The bank’s December quarter net loss more than doubled from the previous quarter to Rs 1,238 crore, as it had to make provisions for the ballooning NPAs.

The bank convened an emergency meeting of its senior executives in Kolkata on Wednesday to draw up a strategy to tackle the crisis. Separately, the bank’s executive directors held discussions with field officials to address the situation.

The public sector lender has begun a recovery drive, aiming to recover Rs 2,000 crore of bad loans by the end of this quarter, it said.

It said the weakness of the tools used previously and also in the September and December quarters largely explained the variation in the NPA figures. It said manual checking of asset classification was a challenge, particularly in the case of a huge volume of small accounts.

“We, therefore, clarify that the wrong NPA classification was the result of deficiencies in the software and the challenge of checking each asset classification manually, particularly the small accounts,” the statement said, adding that there was no intentional intervention at any level to hide NPA.

RBI ordered a forensic audit of the bank to ascertain the causes of the large NPA accretion that eroded profit. In December, the central bank asked the bank not to restructure fresh accounts without its permission. About Rs 13,000 crore debt in the pipeline for CDR didn’t get implemented due to the RBI stricture, though other banks involved in the process approved a rehabilitation package for the companies concerned.

UBI under its chairman and managing director Archana Bhargava was the first bank to take Kingfisher Airlines to the court for not repaying its dues. It was after the UBI move that bigger banks with larger debt piles joined the queue. Bhargava was unable for comments for this story. In its filing to BSE, the bank said it had dominant presence in eastern and northeastern regions and more than 60 per cent of its branch network was concentrated in rural and semi-urban centres.

“UBI has financed a large number of farmers, MSEs, transport operators and small businesses operating in these areas. These business units operate on a very small scale and their loss absorption capacity is typically low. However, the bank has launched a massive recovery drive involving all the resources at its disposal to recover the outstanding dues,” it said.

The lender further said it has been “pursuing with Infosys for a long time to rectify the deficiencies in the Finacle system and the solution to some of which will be made available to the bank very shortly.”

With the implementation of the solution and with various measures undertaken by the bank, the NPA position will improve substantially in the March 2014 quarter, it said. The bank recently reduced interest rates on deposit and increased its base rate to improve the bottomline. Several cost-cutting measures have also been planned to bring about a turnaround in the coming quarter, the bank’s official spokesman said.

(With inputs from Ritwik Mukherjee)

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