UBI insiders say lazy recovery efforts led to bad loan crisis

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Investors and analysts are still groping in the dark to figure out what really went wrong with the Kolkata-headquartered United Bank of India (UBI), but bank insiders say it looks like a case of over-emphasis on identification of fresh bad assets without paying enough attention to recovery and upgradation of accounts.

The PSU lender’s bad loans swelled to alarming levels at the end of the December quarter — the worst bad loan ratio in the industry — prompting the central bank and the government to order a probe.

“The crisis may have been caused by an over-emphasis on identification of fresh non-performing assets without paying enough attention to recovery and upgradation of accounts that had slipped into non-performing assets (NPAs),” bank officials claim.

They point out that the bank’s audited financial results for the March and June quarters of 2013 did not indicate any major inconsistency, “which simply means the subsequent variations might be on account of fresh slippages due to various reasons.”

UBI’s NPAs jumped three times to Rs 8,546 crore at the end of the December quarter from Rs 2,964 crore at the end of the March quarter, 2013.

Amid the ongoing probe, the bank’s chairperson and managing director Archana Bhargava took voluntary retirement one year before her superannuation, accentuating the crisis.

The bank insiders Financial Chronicle spoke to admitted NPAs were a major concern, but pointed out that apart from provisioning for NPAs, significant provisions made towards pensions also created pressure on profitability.

“Those pension provisions were made as per the latest guidelines,” bank insiders claim.

Banks finalise their accounts on the basis of the regulatory guidelines, which are supervised by a specially-designated chief financial officer. Once the accounts are finalised, they are subject to audit by various audit firms. The bankers claim profitability will likely improve from the next quarter, as the lender has already fully provided for the pension requirements.

The lender clocked net loss of Rs 1,238 crore in the December quarter after setting aside Rs 1,858 crore towards NPA, which was over four times of Rs 450 crore it had provided for bad loans in the year-ago period. The bank had reported Rs 489 crore loss in the preceding quarter.

A senior bank official separately told FC that it was not proper to say that aggressive lending at the behest of the government led to the crisis.

“Except for the first two quarters of the financial year 2013-14, when the credit portfolio grew much in excess of the industry average (thereby putting excessive strain on capital), the bank was actually very conservative in expanding its credit portfolio all along,” he said. He said the bank’s growth rate was at best at par with the industry average, or a little lower. The official asked not to be identified.

The bank has since halted all lending activities, except the few such as crop loans. Till recently, UBI was one of the few banks having a Casa (current account, savings account) ratio of around 40 per cent. A higher Casa ratio indicates more low-cost funds as banks pay no interest on current accounts and low interest on savings deposits.

But the bank raised a large amount of high-cost deposits in the first half of FY14 to improve the size of its balance sheet. The bank insiders say the cost of funds will come down once these high-cost deposits are paid off.

The bank’s top brass have been deliberating on the actions required to turn it around, including steps to reduce cost of funds by slicing high-cost deposits and focusing more on low-cost cash, apart from a temporary curb on non-interest expenses (other than staff expenses) to reduce operating cost.

The bank has since become aggressive on recoveries and upgrading accounts that slipped into NPAs recently. Bank officials have been holding regular dialogues with various stakeholders to explore ways for inducing fresh capital, the officials said.

There has been talk of some “loose ends” in the IT infrastructure, which they say will be fixed in a time-bound manner.


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