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United Bank of India reported a loss of Rs1,240 crore in the three months to 31 December, and its capital-adequacy ratio fell to 9.01%. Photo: Mint
United Bank of India reported a loss of Rs1,240 crore in the three months to 31 December, and its capital-adequacy ratio fell to 9.01%. Photo: Mint

United Bank of India may get capital injection from govt

Rajiv Takru says the govt may consider investments to improve the capital adequacy of United Bank

New Delhi/Mumbai: United Bank of India Ltd., the lender with the highest percentage of bad loans in the country, may receive a government capital injection to boost its risk buffers, banking secretary Rajiv Takru said.

“We may consider investments to improve the capital adequacy," Takru said in a phone interview in New Delhi on Wednesday. “The Reserve Bank of India (RBI) is looking for the reasons behind the sudden surge in non-performing loans. The priority will be to recover" those, he said.

He didn’t specify the size or timing of a possible investment. United Bank chairman Archana Bhargava did not return two calls to her office phone by Bloomberg News on Wednesday.

Widening losses at state-run United Bank increase risks for its investors, Fitch Ratings Ltd. said in a 11 February note. Holders of United Bank’s Basel II-compliant tier 1 and upper tier 2 bonds may face an “automatic coupon deferral" under RBI regulations if the lender’s total capital ratio falls below 9%, Fitch said.

The bank reported a loss of Rs1,240 crore ($200 million) in the three months to 31 December, and its capital-adequacy ratio fell to 9.01%, the company said on 7 February. Soured debt at the Kolkata-based lender jumped to 10.8% at the end of December. That level is the highest among banks in India, according to data compiled by Bloomberg.

United Bank shares have fallen 60% over the past year, compared with the 16% decline in the S&P BSE Bankex Index, a gauge of 12 banking stocks.

In October, India announced plans to inject as much as Rs14,000 crore into 20 government-controlled lenders to guard against soured loans in a slowing economy. The government put as much as Rs700 crore into United Bank in December, the lender said in an exchange filing on 26 December.

The government owns 88% of United Bank, according to data compiled by Bloomberg. Bloomberg

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