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.