RBI writes to ministry on United Bank, explores option of superseding board

Appointing new chairman appears to be preferred option for government and regulator at this point of time

The Reserve Bank of India (RBI) has written to the ministry of finance suggesting steps needed to turn around United Bank of India (UBI), which is struggling with mounting losses, deteriorating credit quality and low capital adequacy ratio. Sources familiar with the developments said the central bank also hinted at superseding the board of the state-run bank.

“RBI had submitted a set of recommendations to the finance ministry on ways to revive UBI a few weeks ago. Superseding the board may have been one of the suggestions. But as things stand now I don't think that option will be exercised,” a source told Business Standard. He added that the central bank has not discussed this matter — formally or informally — with any member of the bank's senior management.

Another person familiar with the development claimed that appointing a new chairman appears to be the preferred option for the government and the regulator at this point of time. “The finance ministry has already said that it will appoint a new chairman shortly. Beyond that we don't have any further information,” the person said.

On February 20, Archana Bhargava resigned from the post of chairperson and managing director of the Kolkata-based bank. She opted for voluntary retirement, citing ill health, amid talks of a growing rift between her and other senior executives of the bank. The government promptly accepted her resignation and put the two executive directors — Sanjay Arya and Deepak Narang — in charge of the bank till a new chairman is appointed.

The finance ministry is also keeping a close watch on the performance of the beleaguered state-run lender and has asked its executives to submit a daily report on bad loan recovery status. RBI has also capped the loan sanctioning power of the bank at Rs 10 crore pending further instructions.

Fresh slippages had topped Rs 3,000 crore expanding UBI's gross non-performing assets (NPAs) to Rs 8,546 crore at the end of December 2013. Also, the lender's net loss doubled from a quarter ago to Rs 1,238 crore in October-December period.

UBI has set an ambitious target of reducing its non-performing loans by at least Rs 2,000 crore, which it expects will improve its earnings in the current quarter. The bank is also focusing on retail loans, especially home finance, for fresh disbursements.

The name of MK Jain, currently executive director at Punjab and Sind Bank, is being heard as a possible replacement of Bhargava in UBI. But so far there is no confirmation on this so far.