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Friday, December 13, 2013

RBI Curtails Loan Powers of United Bank

RBI restricts United Bank’s lending powers 
( My Views Given Below)
Curbs on Kolkata-based lender come amid RBI’s increasing concern over rising bad assets in the banking system---LiveMint
Kolkata: The Reserve Bank of India (RBI) has restrained Kolkata-based United Bank of India from advancing a loan of more than Rs.10 crore to any single borrower and barred it from restructuring stressed loans amid increasing concerns over the pile-up of bad loans in the banking system.

The action against United Bank followed a spurt in sticky assets at the lender and allegations of shady accounting practices and poor governance. After taking over as United Bank’s chairperson in April, Archana Bhargava flagged off accounting malpractices at the bank.

“The regulator issues directives from time to time to banks as part of its supervisory function to monitor the various functional areas…under risk-based supervision, and the present action is part of such measure,” United Bank said in a statement in reply to an emailed questionnaire.

RBI has been concerned about the increase in bad loans at banks as slower economic growth and high interest rates make it tough for borrowers to repay debts, and stalled project approvals crimp corporate cash flows. Gross non-performing assets (NPAs) at 40 listed Indian lenders rose close to 37% in the September quarter from a year earlier, to Rs.2.29 trillion fromRs.1.67 trillion. Restructured loans have also risen at a rapid clip.

“The absolute level of restructured assets and NPAs together is around 10% and that’s not a comfortable level,” RBI governor Raghuram Rajan said in an October interview to Mint.

In the case of United Bank, the limit on advances and moratorium on restructuring debt appear to be an interim arrangement until an RBI-mandated forensic audit of internal practices is concluded. Still, the move—unprecedented in recent years—has embarrassed the Kolkata-based public sector lender and hobbled its growth, its top officials said, asking not to be named.

Deepak Narang, an executive director from whom explanations were demanded by the ministry of finance, said he had no comment to make on this matter.

Alongside flagging the accounting malpractices, Bhargava went on overdrive to clean up United Bank’s books, and this led to 171% year-on-year increase in provisioning at Rs.1,493.43 crore and a Rs.444.74 crore net loss in the first half of the current fiscal year.

In the June quarter, the bank’s gross NPAs rose by Rs.1,037.92 crore toRs.4,001.74 crore, and from there on to Rs.6,285.89 by the end of September. In the first six months of the current year, United Bank’s gross NPAs rose byRs.3,322.07 crore to 7.52% of its assets, the highest among public sector banks, against 4.25% at the end of March.

An increase in provisioning towards sticky loans resulted in a Rs.489.47 crore net loss in the September quarter, which, in turn, led to a downgrading of United Bank’s bonds by rating company Crisil Ltd this month. Crisil said it reflects deteriorating asset quality and weakening credit risk profile of United Bank.

The increase in bad loans was accompanied by a sharp growth in lending, something RBI is not comfortable with. In the six months till September, the bank’s loan book expanded by Rs.13,928 crore to Rs.83,636 crore. The biggest jump came in the July-September quarter, during which United Bank registered a 34.16% year-on-year growth in lending—more than double the industry average.

Bad loans have been growing at an alarming pace, said an independent director of the bank, asking not to be named. The clampdown on lending is aimed at stemming the rot at a time when United Bank’s capital adequacy ratio is under pressure, this person said, adding: “The disease has been diagnosed, and the right medicine is now being applied.”

Previously, the credit approval committee headed by the bank’s chairperson had the authority to sanction up to Rs.250 crore in loans. The executive directors could clear loan applications of up to Rs.90 crore, and general managers up to Rs.35 crore.

United Bank could also give loans in excess of Rs.250 crore with the approval of its board, but until the embargo is lifted, even the full board cannot sanction loans in excess of Rs.10 crore, United Bank officials said.

United Bank’s stock closed at Rs.32.20 on BSE, down 2.42%, on a day the Bankex, the exchange’s banking index, dropped 2.25% and the benchmark equity index, the Sensex, fell 1%.

Formed by the merger of four local banks in 1950, some of which were founded in Bangladesh, United Bank had a history of being a weak bank until the late 1990s. At the time of nationalization in the late 1960s, it was among India’s top four lenders.

I would like to put forward few questions before officials of RBI and before Government of India specially Finance Minister who always speak good for the bank and who exploit banks for political gain and who are supposed to be watch dog for safety , security and health of bank and for protecting the interest of investors, customers and staff of the bank.
  • Is Only United Bank of India a bank which has added huge volume of Non Performing Assets?

  • What RBI has done to other banks like SBI or Uco or other banks which has accumulated NPA and impaired assets of more than 10%

  • What actions have been taken against EDs and CMDs of United Bank who contributed in rise of Bad debts, who failed to monitor properly, who sanctioned without due diligence, who took bribe and costly golden an diamond gifts from Branch heads and accumulated wealth disproportionate to their total income from behind the scene ?

  • What action has been taken against Ministers, directors and RBI officials who also contributed in piling up of bad debts and who totally ignored the health for their self interest?

  • What action has been taken against politicians who gave verbal orders to bank officials to sanction loan to corporate and who are now silently watching the development?

  • What action has been taken by RBI and Government of India to fix accountability on top official of bank who are either in service or retire or who have been elevated to the post f ED or CMD of other bank?

  • What action have been taken against those ministers and officials who recommended such an officer for the post of ED and CMD (by taking bribe or gift or under intoxication of flattery and yesmanism ) who caused enormous loss to bank, bank customers, bank staff and bank shareholders?

  • What action has been taken against defaulters who have huge wealth but who are not repaying bank's dues?

  • What actions have been taken against CAs , Advocates and valuers gave ill-motivated bad reports to banks either after taking bribe or in nexus with bankers or under pressure of some local netas?
  1. Last but not the least ---What actions have been taken against court judges, DRT officials , certificate officers, revenue recovery officers etc who are willfully or under manpower constraints postponing and inordinately delaying decision on court cases lodged by banks?
Read following news also

RBI Will Conduct Special Audit Of Allahabad Bank

To check for potential NPAs, RBI orders audit of Allahabad Bank

Close on the heels of directing a forensic audit on United Bank of India, the RBI has initiated a special audit of another Kolkata-based lender, Allahabad Bank.
The banking regulator has notified Allahabad Bank about the audit to assess the potential non-performing assets and ‘special mention accounts’, finance ministry sources told FE. The RBI’s focus on ‘special mention accounts’ of banks is part of its efforts to ensure that the lenders upgrade their Early Warning Systems so that timely action can be taken before more accounts slip into the NPA category, the sources added.
They said one of the objectives of the forensic audit being carried out on United Bank of India is to find out whether any criminal intent on the part of the bank officials had led to a rise in bad loans, and to present such evidence in a court of law.

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