Breaking bad loans ; united Bank Of india

BL Abhishek Law 17 Mar 14

UBI hoping part-recovery, CDR will drive turnaround

On February 21, Archana Bhargava resigned as the Chairperson and Managing Director of United Bank of India, citing reasons of health. But the real story, bank officials say, lies deep inside spiralling bad loans and an apparent fallout between her and some senior officials over categorisation of these non-performing assets (NPA).

The state-run bank’s gross NPAs jumped to ₹8,545 crore (including a fresh slippage of ₹3,172 crore) in the quarter that ended in December 2013. Gross NPAs in the previous corresponding quarter were at ₹2,902 crore.

Many credit Bhargava with bringing the bank’s NPAs into focus. Those in the sub-₹10 lakh category were not being accounted for in annual audits by the RBI. (Around ₹2,300 crore of NPAs are in this category.) They were aggressively categorised as bad loans and Bhargava sought a probe by the RBI.

The results began emerging in the second quarter (July-September 2013) of this fiscal year. From a profit in the previous quarter, United Bank sank into a loss with a 35 per cent jump in sticky assets to around ₹4,000 crore, from ₹2,954 crore for the year ended 2012-13.

Matters worsened in the third quarter with the bank recording a loss of ₹1,238 crore. NPAs, too, shot up. Until December 2013, gross NPAs stood at 10.82 per cent of total advances — one of the highest among Indian banks.

The impact of all this was felt on its capital adequacy ratios. Tier-I capital fell to 5.6 per cent from 6.18 per cent in September 2013 — below the RBI-mandated 6 per cent. Consequently, it faced restrictions on lending.

Turnaround plan

The bank is now turning to corporate debt restructuring and part-recovery to convert bad loans into performing assets. The aim is to reduce provisioning and get back into the black. Also, on the cards is a sale of sticky accounts to asset reconstruction companies.

“We are making operating profits but higher provisioning for sticky assets led to a net loss,” says Sanjay Arya, executive director, United Bank. For the April-December 2013 period, the bank reported a net loss of ₹1,683 crore and provisioning of ₹3,351 crore.

NPAs have been reduced by ₹1,000 crore between January and February. These include closure of certain accounts and part recoveries from others. Arya is confident of a turnaround by the end of this fiscal year, which has only a few days left.

But not everyone is as confident. “I don’t foresee any improvement for at least a year,” said a banking expert.

(This article was published on March 17, 2014)

Glitches in NPA classification, priority-sector lending pain behind United Bank of India's mess: Probe

TFE Arun S | New Delhi | Updated: Mar 17 2014, 01:25 IST

The alarming rise in United Bank of India's (UBI) non-performing assets (NPAs), an internal probe has revealed, could be attributed to many priority-sector loans turning bad and software glitches. The sudden jump was also attributed to 21 consortium/multi-bank accounts that were deemed as NPAs even as other banks that partnered with UBI treated them as “standard” accounts.

The inquiry initiated by the department of financial services (DFS) and assisted by the bank, according to sources, did not reveal any criminality on the part of the UBI officials as this aspect was really not explored.

The sources, however, did not rule out action if agencies/regulators such as Sebi, Institute of Chartered Accountants of India, Central Vigilance Commission or the CBI later finds that mala fide intentions/decisions had led to the crisis.

UBI's gross NPAs saw near 200% increase in absolute terms to Rs 8,546 crore by December end from a year ago.

As percentage of advances, the gross NPAs rose from 4.42% to 10.82% during the period.The Kolkata-based public sector lender's compliance with priority-sector lending (PSL) targets with respect to agriculture and micro, small and medium enterprises has added to its NPA burden.

The bank's PSL had gone up from Rs 23,177 crore in December 2012 to Rs 28,389 crore in December 2013.

Of this, agriculture credit had risen from Rs 9,083 crore to Rs 10,326 crore during the period, while MSME advances had grown from Rs 9,366 crore to Rs 11,406 crore. Mainly, farmers and MSMEs in West Bengal and Tripura benefitted from this. Since the bank is the State Level Bankers' Committee (SLBC) convener in these two states, the bank had, starting 2010, "wittingly or unwittingly" lent more to agriculture and SME segments to meet the annual credit targets, the probe revealed.

UBI's NPAs in the agriculture sector had jumped from Rs 351 crore in December 2012 to Rs 1,156 crore in December 2013 while that in the SME segment rose from Rs 858 crore to Rs 2,436 crore during the period. Of course, the economic slowdown has made the recovery even more difficult.

Financial services

Rs 100-crore realty loan may have cost UBI chief Archana Bhargava her job

Dheeraj Tiwari, ET Bureau | 26 Feb, 2014, 10.33AM 


NEW DELHI: Archana Bhargava may have had to quit unexpectedly
 last week as chairperson of United Bank of India because 
of a Rs 100-crore loan to a real estate developer despite opposition 
within the board, two officials told ET.

In late 2013, 10 general managers of the Kolkata-based bank had 
complained to both to RBI and the finance ministry that Bhargava
 had okayed the loan by overriding the board's dissent. The Reserve
 Bank of India has placed curbs on the bank giving loans of more
 than Rs10 crore to a single account due to its mountain of bad debt.
 "We are under a lot of stress. We cannot comment on this," said 
executive director Deepak Narang.

RBI and government officials confirmed that the complaint had been
 routed through independent director Sunil Goyal, who declined to 
comment. Bhargava resigned on February 22 citing health reasons.
 Agovernment official aware of developments said both the government
 and RBI were agreed on the course of action regarding Bhargava.


Financial services secretary Rajiv Takru and RBI governor Raghuram
 Rajan were on the same page on the issue... A staterun financial institution
 cannot be in a mess for long. And UBI's downfall was way too fast," said the
 official, reflecting on the bad loans of the bank which surged threefold 
to Rs8,546 crore at the end of December from Rs2,964 crore in March.
 Gross non-performing assets (NPAs) touched 10.82% of total loans at
 the end of December.

Bhargava has chosen to stay silent and not defend herself throughout the 
controversy amid conflicting reports about what exactly her role was. 
Some have depicted her as being over eager to clean up the bank's bad 
loans and riding roughshod over those who disagreed with her.

At one point the bank also blamed the spike in non-performing loans on 
the software it was using, although it seemed to step back from doing so
 in later statements.

According to some officials, the finance ministry and the RBI weren't
 convinced about Bhargava's efforts to cleanse the system. "Earlier,
 it was felt that she was setting the books right as most chairmen of
 state-run banks do when they take over. But then, complaints against 
her of both financial and personal mismanagement started flowing in," 
said a senior government official.

The forensic audit by RBI in November raised two issues, said a 
central bank official. "It was mentioned that some of the accounts
 were restructured without a viability study and some accounts, 
which were not eligible for special dispensation, were not downgraded,"
 he said. The government is yet to appoint a new chairman but both RBI 
and finance ministry officials accept that it will be a tough task for the
 next incumbent.

"We cannot supersede the bank's board, after all it's a staterun bank.
 The government will have to infuse capital and put pressure on recovery," 
said the RBI official cited above. "An administrative inquiry is under way 
as to why these NPAs were under-reported or disguised.

NPAs have to be addressed. If there is a lapse then responsibility will be
 fixed," financial services secretary Rajiv Takru said.

Why UBI should be sold to any credible buyer for Re 1. Or it’s money down the drain

The resignation of United Bank of India (UBI) Chairman Archana Bhargava for “health” reasons shows how poorly the government has been handling the situation in an obviously failing bank. The bank’s failing health is obviously beginning to tell on the health of its top bosses – and this suggests that any rescue has to come from changes at the top.

The simplest and best remedy to UBI’s problems is privatisation:  at today’s stock market prices, UBI can be bought for just Rs 1,350 crore by any bidder. Given its huge bad loan portfolio, the government should actually be happy to transfer all UBI shares for Re 1 to any private businessman who is willing to recapitalise it. But this needs political gumption – a sorely lacking commodity in the run-up to an Indian election.

This means UBI will face three more months of uncertain agony before it can be rescued or put out of its misery.

However, let’s be clear who can’t rescue UBI: the government of India. For three reasons.

First, it does not have the money. In the interim budget, P Chidambaram provided all of Rs 11,200 crore for recapitalising public sector banks, but this amount would barely be enough to rescue UBI, which has a bad loan book of Rs 8,545 crore. As we noted before, “the losses not provided for – also known as net non-performing assets – are at 7.5 percent of the loan book (or Rs 5,630 crore). If you add the bank’s restructured loans – loans that would have gone bad if not rescheduled – nearly 20 percent of the bank’s loan book is contaminated.” If all bad loans – disclosed or not disclosed - were to be provided for, the bank’s net worth would probably be wiped out.

Second, government simply does not have the expertise. The reason why public sector banks are falling sick is political pressure to evergreen bad loans made to corporate fatcats (consider the case of Kingfisher), and policy-induced pressure to lend more and more to favoured constituencies like farmers or priority sectors. This means half the problems of the banking sector are created by the government itself. The cause of the sickness cannot be expected to find a long-term cure.

Third, public sector banks, by their very definition, are not autonomous. More so in a venal political climate of irresponsibility and corruption. As Firstbiz noted two weeks ago, many public sector bank jobs are actually sold to the highest bidder. This makes crooked CEOs careless lenders because they are beholden to their political masters and believe they can anyway bank on the government to give them more capital.

If we accept this logic, privatisation is the best way forward. This might anger the unions and make all political parties, from BJP to the Left and the Arvind Kejriwals, froth at the mouth, so one cannot expect an early solution to the UBI’s problems.

This calls for interim measures. These could include:

#1. Making UBI a "narrow" bank – which can only raise deposits, and invest in government securities or AAA bonds. The RBI has already asked the bank to curtail loans, but it should make the bank narrower for a longer time.

#2: To prevent a flood of withdrawals, the government and the RBI should guarantee deposits even beyond Rs 1 lakh – for a temporary period.

#3: The entire bad asset base of the bank should be transferred to a new entity whose only job is to sell, recover or write off bad loans.

#4: Bring in a qualified private banker at the top to run the bank for the next three month before a final call is taken on its future.

#5: Merger with a larger, and more solid, public sector bank, should be avoided at all costs. Reason: this will only hide the problem. The challenge with UBI, and possibly a few other banks that are also on the brink, is that they have to either be turned around or shut down. If one keeps shoving their bad loans under another bank’s carpet, we are merely setting up a good bank for failure at a later date.

Time is running out, and UBI should be treated as a test case for how to intervene in the case of systemically or regionally important public sector banks.

FBiz  R jagannathan 22 Feb 14

Finacle not at fault for United Bank’s troubles: Infosys

Launched in 1999, Finacle is used for accounting by about 90% of Indian banks
. It is also used by some foreign banks, and generates for Infosys 
about $300 million in annual revenue, according to industry estimates. 
Photo: Bloomberg

Live Mint :Manish Basu   |  Anirban Sen :FEB 20 2014. 12 19 AM 

United Bank executive director says at least Rs.400 crore 
of standard assets were wrongly declared as NPAs

 A day after United Bank of India dragged Infosys Ltdinto a controversy by blaming its Finacle software for faulty recognition of sticky loans, the information technology (IT) firm responded by saying the Kolkata-based lender had only recently asked for an upgrade.

“We wish to firmly state that the solution (Finacle) has the proven ability and framework required to address asset classification and NPA (non-performing asset) reporting as per…norms prescribed by RBI (Reserve Bank of India),”Infosys said in a statement.

Launched in 1999, Finacle is used for accounting by about 90% of Indian banks. It is also used by some foreign banks, and generates for Infosys about $300 million in annual revenue, according to industry estimates.

United Bank’s wrong NPA classification was the “result of deficiencies in the software” used by it, the lender said in a statement to Mint on Tuesday. Finacle, according to United Bank, has “inherent deficiencies to correctly identify NPA in certain categories of borrowers”.

The bank on Wednesday released the statement to the stock exchanges in the form of a regulatory filing.

“Finacle has been in use at our bank for at least 10 years now,” said the chief information officer of a state-run lender, asking not to be identified. “Its NPA (recognition) capability was built over a period of time…and it has been built quite well.”

Recognition of NPA “through system (Finacle)” in the September and December quarters has resulted in “a large number of standard accounts (being) shown as NPA and NPA accounts (being) shown as performing assets”, United Bank had said in its statement.

The bank’s executive director Sanjay Arya said in an interview on Wednesday that at least Rs.400 crore of standard assets were wrongly declared as NPAs because of a software snafu. He, however, admitted to manual supervision of asset classification and that there could have been some inadequacies in the past in the scrutiny of sub-Rs.5 lakh loans.

“The weakness of the tools used by the bank previously and also (of those) used in the September and December quarters largely explain variation in NPA figures,” United Bank said in its Tuesday statement.

What it was referring to was a spurt in its NPAs—the lender’s bad loans shot up from Rs.4,001 crore to Rs.8,546 crore between July and December. This translates into 10.8% of gross NPA, measured against its total loan book, which is currently the highest among state-run lenders.

United Bank has been using Finacle from 2007. From January last year, it has been using version 7.0.25 and it told Infosys earlier this month that it wants to upgrade to the latest version, Arya said.

Infosys had released some upgrades over the 7.0.25 version before the latest was launched, but these were not seen by Indian banks as “significant improvements”, according to Arya.

For the past two years, United Bank has been persuading Infosys to provide meaningful upgrades to versions it used, but the software developer was unable to provide them, Arya said.

However, in the wake of recent developments, Infosys has agreed to make “necessary changes” to the version in use at United Bank by March, he added.

An Infosys spokesperson said in an emailed response that “requests for professional services including NPA modifications” that were to the company through United Bank’s application service provider were “appropriately addressed”.

Due to rapid deterioration in asset quality, United Bank was forced to halt lending. Special audits were conducted by the Reserve Bank of India and an arm of professional services firm Deloitte, following which the banking regulator asked it in November to stop making more than Rs.10 crore in loans to any single borrower.

With its capital adequacy ratio (CAR) crashing to 9.01% following its Rs.1,238 crore loss in the December quarter, the bank has been forced to halt lending almost entirely. Arya expects things to look up and the restrictions imposed on lending to be withdrawn by the end of the March quarter.

United Bank of India chief quits as bad-loan crisis boils over

 BL Feb 21,2014

Archana Bhargava, CMD of United Bank of India (UBI), has resigned. According to a release, 59-year-old Bhargava, who was at the helm of affairs at UBI since April 2013, opted for voluntary retirement with effect from February 20. She was due to retire in February 2015.

Bhargava’s resignation comes in the wake of a surge in bad loans at UBI, leading to a loss of around ₹1,200 crore in the third quarter.

UBI’s gross non-performing assets (NPAs) jumped to ₹8,546 crore in the October-December quarter (including a fresh slippage of ₹3,172 crore). Gross NPAs in the corresponding year-ago quarter stood at ₹2,902 crore.

UBI’s loan assets have been under the scanner since the start of this fiscal year. Having taken charge, Bhargava asked the Reserve Bank of India to re-audit its books, especially with regard to the smaller loans in the below-₹10 lakh category.

Turning bad

Most of these loans were said to be turning bad. Acting upon the request, the RBI, along with Deloitte, began special audits. Though the findings have not been made public, the focus on bad-loan detection was evident in the rise in NPAs.

Despite reporting a profit in the April-June quarter, UBI saw a 35 per cent jump in sticky assets to around ₹4,000 crore, from ₹2,954 crore during the year ended 2012-13. The surge in bad loans dragged the bank into the red, beginning from the July-September 2013 quarter.

As of December 31, 2013, UBI’s gross NPAs stood at 10.82 per cent of total advances, one of the highest among Indian banks.

D Narang, Executive Director, UBI, said the bank has initiated a recovery drive. Opportunities are also being explored to sell the bad loans to asset reconstruction companies. “Our idea is to bring down NPAs by at least ₹2,000 crore in this quarter,” he said.

Asked if the bank had undertaken any such recovery drive over the last year, Narang refused to comment.

New chief soon

The Finance Ministry is likely to appoint a new chief for United Bank in the next 15 days, said Rajiv Takru, Secretary, Department of Financial Services.

United Bank blames Infosys software for wrong bad loan entries

B L : 20 Feb 14

Kolkata-headquartered United Bank of India has blamed its bad loans problem on inherent deficiencies in its core banking solution (CBS) platform, which is based on Infosys’ Finacle system.

In a statement to the BSE, the public sector bank said: “The Finacle system has inherent deficiencies to correctly identify non-performing assets (or bad loans) in certain categories of borrowers like Kisan Credit Card, Restructured Accounts, Cash Credit/Over Draft continuously overdrawn for more than 90 days, Export Credit Guarantee Corporation covered accounts, etc. The deficiencies still continue in the software.”

The bank said the generation of NPAs (non-performing assets) through the system during the September-December period has given rise to a large number of standard accounts being shown as NPAs and NPA accounts being shown as performing assets.

United Bank’s gross non-performing assets jumped 194 per cent to Rs. 8,545.50 crore (including fresh slippage of Rs. 3,172 crore in the October-December quarter) as of December-end 2013 against Rs. 2,902 crore in December-end 2012.

Rise in provisioning

Huge provisioning of Rs. 1,783 crore towards bad loans saw the bank report a loss of Rs. 1,238 crore in the third quarter against a net profit of Rs. 42 crore in the year-ago period.

According to the bank, manual checking of asset classification done through system poses a challenge, particularly in case of small accounts (such as agricultural loans, Government-sponsored loans, small business loans, etc) in view of their magnitude.

“The bank has been pursuing with Infosys for a long time to rectify these deficiencies in the Finacle system and the solution to some of which will be made available very shortly,” the statement said.

Infosys’ stance

An Infosys spokesperson said: “We wish to firmly state that the (Finacle) solution has the proven ability and framework required to address the asset classification and NPA reporting as per the Income Recognition and Asset Classification norms prescribed by the RBI.”

Infosys said from time to time, it provides enhancements in features for its customer-banks to test and deploy the same in their environment to meet their business requirements.

“United Bank of India, through its application service provider HP, recently approached us with a request to implement this in their environment and we are helping the bank in this regard,” the spokesperson said.

United Bank said its Executive Directors and top management are confident of upgrading and reducing NPAs by at least Rs. 2,000 crore in the March quarter.

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The bank said the generation of NPAs through the system during the September and December quarter has given rise to a large number of standard accounts being shown as NPAs and NPA accounts being shown as performing assets.

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(This article was published in the Business Line print edition dated February 20, 2014)

Beyond Bad loans :ICRA downgrades United Bank's Tier-II bonds, CDs

BS Reporter  |  Mumbai  February 14, 2014 Last Updated at 00:47 IST
Sharp rise in bad loans, rising losses lead to action

 Rating agency ICRA announced on Thursday a downgrading of United Bank of India (UBI)’s capital bonds (Tier-II) and certificates of deposit (CDs), due to a higher than expected deterioration in asset quality, pressures on margins and profitability.

The ratings have been put on a watch with negative implications, ICRA stated. It cut the rating for lower Tier-II bonds from AA- to A-. The rating for CDs has been downgraded from A1+ to A2+.

ICRA said the revision reflected the considerably higher than expected deterioration in asset quality. Gross non-performing assets (NPAs) rose sharply to 10.82 per cent as on December 30, against 7.52 per cent as on September 30, 2013. The vulnerable portfolio also includes standard restructured advances, 5.25 per cent of the total as on December 31.

The Kolkata-based public sector lender also saw pressure building on its earnings, as it posted a net loss of Rs 1,238 crore in the quarter ended December. It had a loss of Rs 489 crore in the earlier one. Its capital adequacy ratio also declined to 9.01 per cent in December as against 9.48 per cent in September. The Tier-I capital was 5.59 per cent at end-December, down from 6.18 per cent in September.  The government had injected Rs 700 crore as equity in the third quarter.

On February 11, Fitch, another rating agency, warned UBI’s recent losses might result in the state-run lender's capital ratios falling below the regulatory minimum and test the regulator's approach to the Basel-III capital rules. This is likely to be the first such instance within Asia since implementation of the Basel-III framework. It is also important at this time because a number of Indian banks, mostly state-owned, are considering raising of fresh regulatory capital in the international market, due to capital pressures on the sector, the rating agency had said.

ICRA said UBI would continue to post losses, given its large unprovided NPAs (with net NPA of 7.44 per cent as of December) and its higher NPA generation rate, which would further exert pressure on its capitalisation and solvency ratio. The net loss for  April-December 2013 was Rs 1,683 crore, as against a profit of Rs 361 crore a year before.

CRISIL downgrade

In a related development, rating agency CRISIL also downgraded rating for UBI’s Tier-II bonds (under Basel-II norms) from “AA” to “AA-” and Tier-I perpetual bonds from “AA-“ to “A”.

The downgrade on the Tier-II Bonds reflects the continued and higher than expected weakening in United Bank's asset quality and earnings profile, CRISIL said in statement.

ICRA ratings continue to be based on the high likelihood of timely support from the Government of India (GOI). A lack of support from the government could trigger a further downgrade of the rating.  

The ratings have been put on watch with negative implications as ICRA will be closely monitoring what is being done to shore up the bank’s capital.  The amount and timing of support from GOI and the bank’s ability to arrest further losses due to a worsening asset quality would have a critical bearing on its credit profile.

Is bad loan menace at United Bank of India a cover-up after serious Lapses ?

ET Now Simran Gil 13 Feb 14

Is the bad loan menance at United Bank of India a cover-up by the bank's management after serious lapses? Sources close to the development say, the report prepared by RBI-appointed forensic audit firm Deloitte suggests serious lapses on the credit appraisal and automated NPAdetection system of the bank. Sources also say that the report suggests that NPAs were not being detected for past two and half to three years. 

A senior banker in the know says, "the automated system that detects NPAs was found switched off, whether it was intentional or by mistake remains a big question." TheReserve Bank of India had appointed Deloitte to conduct a forensic audit on the bank. 

United Bank of India sent shock waves across the banking sector when it reported gross NPAs at 10.89% in Q3, increasing its bad loans by nearly three times. However, sources in both the government and RBI maintain that the situation at United Bank of India does not pose a systemic risk. The bank has also been instructed to focus primarily on debt recovery and avoid any fresh loans especially on the corporate side. 

Though the bank is dire need of capital, sources indicate that the government will not be in a position to infuse funds immediately, and this will most likely have to wait till the new fiscal starts. 

UBI posted a net loss of 1238 crore rupees in Q3 compared with 42 cr net profit a year ago. Serious questions have also been raised on the bank's capital position. The bank's tier 1 capital has fallen to 5.6% as of Dec, 2013, which is below the minimum capital ratio stipulated by the RBI 

Even in the past questions have been raised on the governance practices at public sector banks. Sources indicate that the RBI had requested the government to appoint a committee on the same, following which PJ Nayak committee to review the governance of bank boards in India was set up in January this year. 

Calls to United Bank of India's CMD by ET NOW remained unanswered.