United Bank of India chief Archana Bhargava quits

Kolkata: The crisis at United Bank of India has claimed its first victim. Ironically, it is Archana Bhargava, chairperson and managing director, who in her brief stint of about 10 months blew the whistle on accounting malpractices at the Kolkata-based lender and alerted the Reserve Bank of India (RBI) about thousands of crores of unreported sticky loans.

Bhargava has resigned, United Bank said in a statement on Friday, adding that her request for voluntary retirement had been accepted by the Union finance ministry with effect from 20 February. She was on leave for about 10 days, and the first sign of her possible exit came on Sunday, when she skipped an important meeting with the bank’s regional heads in which a strategy for recovery of at least ₹ 2,000 crore of bad loans was firmed up.

A banker for 37 years, who started her career as a management trainee at Punjab National Bank, Bhargava couldn’t be contacted for comment on Friday despite several attempts.

Bhargava, who joined United Bank in April 2013, was widely disliked, especially on the third floor of United Tower—the home of the credit department at the bank’s head office in Kolkata. Alleged to have often pulled rank on colleagues, Bhargava stirred up a storm at the bank when she asked RBI to conduct a close scrutiny of the lender’s books with an eye on unreported non-performing assets (NPAs).

What it led to forced the bank to halt lending—gross NPAs surged to 10.8% of the loan book, the capital adequacy ratio fell to 9.01% after it reported a net loss of ₹ 1,238 crore for the December quarter, and the bank had to seek fresh capital injection to stay afloat, reversing years of efforts to boost its reserves. Though the banking regulator supported Bhargava in her drive to unearth NPAs, old-timers say her move eventually proved to be self-destructive.

Bhargava’s resignation and its prompt acceptance by the finance ministry seem to suggest she paid the price for cleaning up the books too quickly and for making too many enemies, but key executives at the bank say there could be more than meets the eye. In a season of broom wielding, it might not have been her crusade alone that did her in.

The official reason, cited by Rajiv Takru, banking secretary in the finance ministry, is ill health. She asked for voluntary retirement on health grounds, he added. Asked if she might have to take the blame for the mess at United Bank, Takru said: “That is a separate matter…of inquiry.”

In view of the rapid asset quality deterioration and a falling capital adequacy ratio, RBI asked the bank in November not to lend more than ₹ 10 crore to any single borrower. It also imposed a moratorium on restructuring of stressed assets, which meant after those restrictions were imposed, the entire senior management was expected to focus on recovery alone.

But following the 7 February board meeting, in which the bank’s December quarter earnings were reviewed, Bhargava was missing in action. She didn’t, though, go on leave immediately. By then the situation had considerably worsened, and though the dominant view is that it is unlikely to get worse, Bhargava had thrown in the towel, say officials, asking not to be named.

She did, however, end during her term the practice of manually determining asset quality, forcing United Bank to report unfiltered all NPAs recognized by its accounting software Finacle—a time-tested product from Infosys Ltd, launched in 1999. The version used by United Bank, though, is dated.

Earlier this week, United Bank blamed Finacle for its NPA woes, first saying that “inherent deficiencies” in it were responsible for bad loans going unnoticed previously, and topping it with a claim that ₹ 400 crore of standard assets had been shown as NPAs in the December quarter because of the faulty software.

Infosys, whose Finacle software is used by nine out of 10 Indian banks and generates about $300 million in annual revenue, issued a strong rebuttal, saying its product was fully compliant and all requests for upgrades from the Kolkata-based lender were addressed.

United Bank’s tune changed on Thursday, when Deepak Narang, one of its executive directors, was quoted in an Infosys statement as saying that Finacle didn’t have any “inherent deficiencies”.

The bank has for years under-reported NPAs in the sub- ₹ 10 lakh category, an independent director had said in an interview earlier this week, asking not to be named. It has “a history of junking the stats” for this category, and it wasn’t immediately detected because RBI doesn’t normally put small loans under its scanner during its routine annual financial inspection, this person had said.

Bhargava pointed in the right direction, and RBI asked professional services firm Deloitte to conduct a forensic audit of such small loans. The result: Sanjay Arya, another executive director, admitted in an interview on Wednesday that the bank had ₹ 2,300 crore of NPAs in the sub- ₹ 10 lakh category, which is exceptionally high (26.9%) when measured against its gross NPAs of ₹ 8,546 crore.

In the September and December quarters, the bank has reported ₹ 4,545 crore of fresh NPAs. Of this, ₹ 1,500 crore was on account of small loans turning sour. The remaining ₹ 3,000-3,100 crore was on account of large corporations not repaying loans, Arya had said in the interview, adding that the bank did not intentionally hide NPAs at any time.

Bhargava had burnt all bridges behind her, according to the independent director cited above. “She came with a broom and did her job, if that was her mandate… I am not sure, though, that that was the mandate,” this person said on Friday. “She cleaned up the books, but no one realistically expected her to clean up the mess.”

Asit Ranjan Mishra in New Delhi contributed to this story.