United Western Bank in the dock over CAR

The declining capital adequacy ratio (CAR) of the Satara-based United Western Bank, which is planning a Rs 43.04 crore rights issue, may trigger urgent steps to improve financial health under the Reserve Bank of India's prompt corrective action (PCA) plan.

The private sector bank's CAR was 4.86 per cent as on March 31, 2005 and further declined to 3.68 per cent as on June 30, 2005, which is below the RBI-stipulated norm of 9 per cent. The CAR has further slipped to 3.15 per cent by the end of September 2005.

The bank plans to issue 1.79 crore equity share of Rs 10 at premium of Rs 14 each in the ratio of one equity shares for two shares held on the record date.

The bank, outlining the internal risks in its draft issue prospectus for rights offering, said it has approved a roadmap for raising additional capital, including the rights issue of 1.79 crore equity shares of Rs 10 each.

But even after this rights issue, the capital adequacy will not comply with RBI stipulation, and this may trigger mandatory and discretionary actions from RBI as per PCA framework, UWB said in a document filed with the Securities and Exchange Board of India.

The Bank has prepared a plan for the next three years and kickstarted consolidation. As a part of consolidation process, bank has taken a prudential write-off for non-performing assets of Rs 59.15 crore.

It has shifted securities worth Rs 258.31 crore to Held To Maturity (HTM) category from Available for Sale (AFS) category as per RBI guidelines. The depreciation arising on such shifting of Rs 29.16 crore has been charged to profit and loss account, bank said in September 2005 results.

Bank has incurred a net loss of Rs 27.55 crore for the first half ended September 2005 against a net profit of Rs 1.24 crore in the same period last year. Total income for the H1 declined to Rs 275.95 crore from Rs 279.17 crore a year ago.

Gross non-performing assets declined from 13.96 per cent to 12.89 per cent. But they have grown from level of 10.72 per cent in March 31, 2005 The net NPAs are down at 6.74 per cent at end of September 2005 from 9.35 per cent a year ago.