United Bank of India steps up turnaround efforts in face of new PCA curbs

United Bank of India | Photo: Wikimedia Commons

Under increasing pressure from Reserve Bank of India to improve its financials, United Bank of India has stepped up efforts towards turnaround by March 2018.The central bank recently imposed additional restrictions on United Bank of India under the Prompt Corrective Action (PCA) framework.

 

Now, as a part of the intensified turnaround effort, the bank is looking to close 8 to 10 branches and about 20-25 ATMs. It is considering selling Rs 1,500 crore worth loan to ARCs this quarter. Also, according to P Bajaj, chairman of United Bank of India, if NPA cases under National Company Law Tribunal (NCLT) do not resolve, the bank will also vet the option of selling those loans to ARCs. To meet the regulatory capital requirement, it is planning to raise close to Rs 1,000 crore as QIP and awaiting government capitalisation.

 

"As a part of the earlier signed MoU, we have already enforced conditions spelt out by RBI. We have been giving only investment grade loans, reducing the cost of operation, looking for speedier resolution of NPAs in smaller accounts. This apart, we are also looking to sell loans to ARCs. We are awaiting NCLT resolution, but in case nothing much materialises, will also vet options of selling loans under NCLT to ARCs," said Bajaj. The bank has a total exposure of about Rs 3,250 crore in NCLT accounts.

 

In the quarter ended September 2017, the United Bank of India's gross NPA had swelled to 18.80 per cent, while the net NPA stood at 11.63 per cent. Notably, United Bank of India was one of the first public sector banks to be subject to RBI's PCA, way back in 2014. The Kolkata-based lender reported a net loss of Rs 1,238 crore in September-December 2013, and gross NPA exceeded 10 per cent. By March 2015, PCA was partially lifted as the bank posted consecutive profits in several quarters. The only restriction which remained pertained to branch expansion.

 

However, over the last one and half years, the finances of the bank had deteriorated, and in July this year, as a part of the Memorandum of Understanding (MoU) signed with the government of India for recapitalisation, the bank had agreed to provide loans only for entities investments grade ratings and cut operational costs, among other measures. Despite this, the bank's net loss increased from Rs 211 crore in Q1 to Rs 345 crore in Q2 of the present financial year. The bank's gross NPA increased to 18.80 per cent in Q2 from 17.70 per cent in Q1 of the present financial year.

 

At the end of September 2017, United Bank of India's CAR was 10.70 per cent. Banks need to maintain total capital ratio (CAR) of 11.5 per cent by 2019 and 10.875 per cent by March 2018.

 

The Kolkata-based United Bank of India has trimmed its workforce by 700-800 in the past one and half years as a part of its turnaround plan.

 

While the bank has not retrenched any employees, it has been selectively hiring to replace retired ones.

 

The bank is going for a one-time settlement for small and medium corporate accounts as part of its restructuring exercise. Last year, the bank got back about Rs 1,200 crore through recovery.

 

As a conscious decision, the bank is focusing on retail and MSME lending, while reducing exposure to corporate lending, which accounts for 33 per cent of its loan book.


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