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United Bank of India (UBI) has scripted a turnaround. The bank has reversed its losses, reduced its bad loans and made profit for three consecutive quarters. The Kolkata-based bank reported a net profit of Rs 43.8 crore in the July-September quarter, compared to a net loss of Rs 489.5 crore in the year-ago period. The improved earnings have prompted the Reserve Bank of India (RBI) to relax the cap on the lender’s loan sanctioning power. UBI Executive Director Sanjay Arya in an interview with Somasroy Chakraborty details the factors that helped the bank reverse its losses. Edited excerpts:
What contributed to the improvement in earnings?
We have been able to contain our non-performing assets (NPA). We had stepped up our recovery efforts to monitor the progress almost on a daily basis. We were also lending cautiously and avoiding large-ticket corporate loans. This helped us improve our asset quality. Also, we have been able to reduce our cost of deposits sharply. It has led to an improvement in our operating efficiency. We have now completely turned around the performance of the bank.
The gross NPA ratio, at 10.8 per cent, still appears high.
That is because we have not been lending aggressively. Hence, as a percentage of our gross advances, the non-performing assets ratio appears high. We have been one of the few banks in the country that has been able to reduce non-performing assets in the last three quarters. Our gross non-performing assets at the end of September 2014 was Rs 7,074 crore compared to Rs 7,097 crore in June 2014 and Rs 8,546 crore in December 2013.
What led to the decline in the cost of deposits?
We have been shedding high-cost bulk deposits. At the end of the last quarter, we had Rs 2,300-crore high-cost deposits, compared to Rs 34,000 crore a year earlier. As a result, our cost of deposits has come down to 6.9 per cent from 7.4 per cent. One of our key strength is Casa (current account, savings account) deposits.
Our Casa ratio was 40 per cent at the end of September. The average Casa deposits during the quarter were Rs 40,000 crore compared to Rs 36,000 crore a year earlier. We are also focusing on mobilising retail term deposits, which is currently more than 50 per cent of our total deposits.
RBI had restricted the loan sanctioning power of UBI to Rs 10 crore. Has it been relaxed?
One of the concerns that prompted the regulator to impose a cap was our low capital adequacy ratio. But now, the capital adequacy ratio is at a comfortable level, at 10.48 per cent (by Basel III rules). Since, we have performed consistently, the Reserve Bank of India had initially relaxed the cap and allowed us to lend more money to AAA-rated companies.
But we found that many of these companies were raising funds from the bond market and not necessarily borrowing money from banks. Now, we have been allowed to lend more money to even AA-rated companies.
