ICRA downgrades United Bank bond's rating on NPA scare

The troubles of United Bank of India (UBI), which saw a massive spike in its bad loans, increased today with ICRA downgrading the rating on the Kolkata-based government lender's tier-II bonds programme.
"The rating on the tier-II bonds programme of United Bank of India has been put on watch with negative implications," the rating agency said in a report here.
ICRA, an associate of Moody's Investors Service, said the rating revision reflects considerably higher-than-expected deterioration in UBI's asset quality as its fresh non-performing asset (NPA) generation rate increased to 16.4 per cent in Q3, putting its earnings and capital adequacy and solvency levels under pressure.

UBI's net NPA as a percentage of net worth soared to 162 per cent in Q3 from 109 per cent in Q2, while its net loss widened to Rs 1,238 crore during the quarter. Its gross NPAs rose to 10.8 per cent and net NPA to 7.44 per cent in Q3.
The agency warned that unless the government supports the bank, there could be a further downgrade of its rating.
Earlier this week, Fitch Ratings had said UBI's Q3 losses may test the government's approach to Basel III banking norms and that the widening losses could result in the bank's capital ratio falling below the required minimum level.

"Existing holders of UBI's outstanding legacy Basel II tier-1 and upper tier-2 capital instruments will face the prospect of automatic coupon deferral as per RBI regulations if the total capital ratio, which is currently borderline at 9 per cent, were to be breached," Fitch had said.

The government has already injected Rs 700 crore into UBI this financial year.
The bank had reported a net profit of Rs 42 crore in the quarter ended December in the previous financial year.
In the first nine months of the current financial year, it made a net loss of Rs 1,683 crore compared with a net profit of Rs 361 crore in the similar year-ago period.