 "United Bank not a merger candidate, says Takru")
Indicating strong support for financially-troubled United Bank of India, the central government on Friday said the Kolkata-based public sector bank wasn’t a candidate for a merger with another one.
“It is a safe entity and does not pose a systemic risk. The Reserve Bank of India (RBI) and the government have had detailed discussions about the bank. We are watching the situation closely,” Rajiv Takru, secretary in the department of financial services, told Business Standard. A merger, he added, wouldn’t address the problem (of bad loans and recoveries), but only transfer it.
He said the bank had to pull up its socks, concentrate on recovering dues and function responsibly.
The bank has seen pressure on earnings, posting a net loss of Rs 1,238 crore for the quarter ended December 2013. For the quarter ended September, it had reported a net loss of Rs 489.48 crore.“It is a safe entity and does not pose a systemic risk. The Reserve Bank of India (RBI) and the government have had detailed discussions about the bank. We are watching the situation closely,” Rajiv Takru, secretary in the department of financial services, told Business Standard. A merger, he added, wouldn’t address the problem (of bad loans and recoveries), but only transfer it.
He said the bank had to pull up its socks, concentrate on recovering dues and function responsibly.
After a dismal performance in the first quarter, the bank had opted for a forensic audit of its books. Since then, it has focused on recoveries and building its low-cost deposits portfolio.
During the quarter ended September, there was higher provision towards bad loans. As of December 2013, its gross non-performing assets rose to 10.82 per cent of the total from 7.52 per cent as of September 2013. Its portfolio included standard restructured advances (5.25 per cent of total advances) as of December, according to rating agency ICRA. United Bank of India’s capital adequacy declined from 9.48 per cent in September 2013 to 9.01 per cent in December.
Tier-I capital stood at 5.59 per cent at the end of December, against 6.18 per cent in September.
In the December quarter, the government had injected Rs 700 crore into the bank. “There is no specific plan for capital infusion. It is a safe government bank,” Takru said on Friday.
On Friday, ICRA downgraded United Bank of India’s capital bonds (Tier-II) and certificates of deposits. Another rating agency, CRISIL, cut the rating for tier-II bonds (under Basel-III norms) from ‘AA’ to ‘AA-’; it also cut the rating on tier-I perpetual bonds from ‘AA-’ to ‘A’. The agencies said the downgrade reflected higher-than-expected weakening in the bank’s asset quality and earnings profile.
United Bank's stock closed lower at 24.50, down by 2.2 per cent over previous close on Bombay Stock Exchange.