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Business News/ Companies / Icra cuts United Bank rating as bad loans mount
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Icra cuts United Bank rating as bad loans mount

Icra says support from govt and the bank's ability to arrest further losses will have a critical bearing on its credit profile

United Bank posted a `1,238.08 crore loss in the December quarter, following a `489.47 crore loss in the preceding quarter, eroding the bank’s net worth and cutting its capital adequacy ratio to a bare minimum 9%. Photo: MintPremium
United Bank posted a `1,238.08 crore loss in the December quarter, following a `489.47 crore loss in the preceding quarter, eroding the bank’s net worth and cutting its capital adequacy ratio to a bare minimum 9%. Photo: Mint

Mumbai: Icra Ltd has downgraded the credit rating on Kolkata-based United Bank of India (UBI) and also put it on “watch with negative implications" citing deterioration in the bank’s asset quality.

Rating on the bank’s 950 crore tier II bonds programme has been cut to A- (minus) from AA- (minus), while its 575 crore upper tier II bond programme has been cut below investment grade to BBB- (minus) from A+ (plus), the credit rating agency said in a press release.

“The revision in rating reflects considerably higher than expected deterioration in asset quality (fresh non-performing asset generation rate increasing to 16.4% in Q3, 2014), the resultant pressure on earnings (the bank reported a loss of 1,238 crore in Q3, 2014), on capital adequacy (capital adequacy dropped to 9.01% in Dec-13 as against 9.48% in Sep-13) and on the solvency (Net NPA as % of Net worth increasing to 162% in Dec-13 as against 109% in Sep-13) of UBI," Icra said.

The local arm of Moody’s Investors Service Inc. said its present ratings “continue to be based on high likelihood of timely support from the government of India," adding: “Lack of this could trigger a further downgrade of the rating."

“Icra takes note of the timely servicing on perpetual debt by the bank in December 2013 (not rated by Icra) with prior approval from RBI. However, in light of low capital adequacy and likely losses in short term, probability of the bank breaching the capital adequacy trigger (and therefore resulting in a coupon deferral) is relatively high. The sharper rating downgrade on Upper Tier II bonds reflects the heightened risk of deferral in light of the current situation unless steps are initiated to shore up the bank’s capital," the agency said.

United Bank posted a 1,238.08 crore loss in the December quarter, following a 489.47 crore loss in the preceding quarter, eroding the bank’s net worth and cutting its capital adequacy ratio to a bare minimum 9%.

The bank’s core tier I capital, or equity and reserves, has dropped below 6%, which means that the bank will not be able to give loans any more for lack of capital, Mint reported earlier this week.

RBI has already ordered a forensic audit of the bank’s books late last year and restrained its management from giving high-value loans after the bank announced a 438 crore loss and a 50% jump in gross bad loans in the previous quarter. But its health deteriorated further in the December quarter with gross bad assets crossing 8,500 crore and touching 10.82% of advances.

Icra said it will closely monitor “immediate steps being initiated to shore up the bank’s capital".

“The quantum and timeliness of support from government of India as well as the bank’s ability to arrest further losses due worsening asset quality would have a critical bearing on its credit profile," the agency said.

On Wednesday, Bloomberg cited banking secretary Rajiv Takru as saying that United Bank may receive a government capital injection to boost its risk buffers.

“We may consider investments to improve the capital adequacy," Bloomberg cited Takru as saying. “RBI is looking for the reasons behind the sudden surge in non-performing loans. The priority will be to recover those," he said.

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Published: 13 Feb 2014, 06:11 PM IST
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