RBI adds more restrictions on United Bank of India due to high NPAs

After Bank of India, Reserve Bank of India on Tuesday imposed additional restrictions on United Bank of India under the Prompt Corrective Action (PCA) framework given the high stress levels owing to the bank’s high bad loans.

“The action points focus on profit retention, capital augmentation, provision coverage, diversification of credit portfolio, rationalisation of expansion and cost control," UBI said Wednesday said in its disclosure filing to stock exchanges.

It said that the RBI, in a letter dated December 19, has prescribed certain additional actions under the PCA in view of high net NPAs or non-performing assets, low leverage ratio and requirement to raise capital based on the assessment of the bank’s position as on March 31, 2017.

Bank of India is the ninth lender placed under Prompt Corrective Action Framework by the RBI after Corporation Bank, Oriental Bank of Commerce, UCO Bank, Central bank of India, IDBI bank, Dena Bank, United Bank of India and Bank of Maharashtra.

This is the second time in four years that UBI has come under regulatory sanctions and is forced to take corrective measures for strains in financials.

In 2013, RBI had restricted the bank from lending freely after the then chairperson Archana Bhargava flagged off accounting malpractices.

The Kolkata-based government bank had net NPA ratio at 10 percent as on March which rose to 11.63 percent as on September 2017 , breaching the prescribed second level risk limit of 9 percent, which was the reason for inviting RBI direction.

The bank added that the normal banking activities such as acceptance of deposit, credit disbursement and treasury function remain unaffected.

United Bank reported a loss for two consecutive quarters now at Rs 345 crore for the September quarter that followed a Rs 211 crore in the first quarter of 2017-18 ending June, 2017.

Its asset quality deteriorated further with gross NPA at Rs 12,893 crore at the end of September, accounting for 18.80 percent of the total advances at Rs 68,562 crore. This is one of the weakest NPA ratios in the banking sector, other banks being IDBI Bank.

"The regulatory action is not likely to have any material impact on the bank's performance and will contribute to the improvement of the internal control and intrinsic strength of the bank," UBI added in its filing.