United Bank of India to raise `1,000 crore to shore up capital

Kolkata: In the wake of mounting non-performing assets (NPAs), United Bank of India on Monday said in a regulatory statement that it was looking to raise Rs1,000 crore by selling shares and debt instruments to the central government and institutional investors.

At the end of the December quarter, United Bank’s gross NPAs had swelled to 10.8% of its loan book and capital adequacy ratio (CAR) had crashed to 9.01% because over six months till the end of 2013, its sticky loans more than doubled from Rs4,001 crore to Rs8,546 crore. This has impaired its ability to lend.

The Kolkata-based public sector lender now needs infusion of fresh equity to shore up its CAR, without which it would not be able to make loans even if the Reserve Bank of India eased restrictions imposed on its operations. In December, the banking regulator ordered United Bank not to lend more than Rs10 crore to any single borrower.

United Bank’s capital raising plan was announced on a day the Union finance minister P. Chidambaram announced budgetary support of up to Rs11,200 crore to public sector lenders.

In a related development aimed at making a turnaround, United Bank said in a press statement that it had briefed all its regional heads on Sunday to launch an “intensive drive” to recover at least Rs2,000 crore of NPAs in the March quarter. This meeting was led by the bank’s executive directors and not by chairperson Archana Bhargava, who is on leave.

The bank’s shares continued to slide to new lifetime lows. On BSE, they fell 0.82% to Rs24.30 on Monday, while the Sensex gained 0.48%.

In the December quarter, the bank managed to reduce NPAs by Rs913 crore, but because of fresh slippage of Rs3,172 crore, sticky loans went up sequentially from Rs6,286 crore to Rs8,546 crore—an increase of Rs2,260 crore. Its gross NPA of 10.8% is currently the highest among state-controlled lenders.

A “concrete action plan” was prepared in consultation with managers on the ground, United Bank said in its press statement, adding that it had last week pared interest rate on deposits and raised base rate for lending in a bid to improve operating profit. The bank has also launched some measures to cut costs.

Officials who attended Sunday’s meeting said teams were formed for each region to step up recovery initiatives. “With hardly any loan proposal to vet, we will focus exclusively on recovery till the end of March,” said one of these officials, asking not to be named. The bank will target all stressed loans with a special focus on those that have recently turned NPAs, the officials added.

In a bid to cut costs, the bank has also decided to stop opening new branches till the end of March. Also, it will not transfer its officials unless essential.

After it reported a loss of Rs1,238 crore for the December quarter compared to a net profit of Rs42.2 crore in the same period in the previous year, United Bank’s management asked its officials to stop making any loans at all, but has since asked branches to consider loan proposals selectively, according to officials cited above.