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

Written by Arun S | New Delhi | Updated: Mar 17 2014, 06:55am hrs
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 secretary Rajiv Takru told FE the probe report was under examination,adding, the government would take necessary administrative action on the basis of the report as well as the reports of the RBI and consultancy firm Deloitte, which have also been submitted to the ministry.

On the issue of classification of 21 consortium/multi-bank accounts as NPAs, the sources said this has happened as the concerned clients had repaid the other banks in the consortium/multi-bank accounts, while keeping UBI high and dry. More discussion with other banks, the UBI Board and its statutory auditors could give a clearer picture as to whether these accounts can now be treated as 'standard' by UBI also, the sources said.

They said Archana Bhargava, during her tenure as the bank's chairperson and managing director, had asked auditors to be strict and unrelenting in treating accounts as NPAs. This, sources said, resulted in some of the accounts, which could have been restructured, also being classified as NPAs.

The probe also found that there were 'deficiencies' in Finacle 'core banking software' of Infosys which led to incorrect classification of accounts. However, the IT major had denied this allegation and stated that Finacle "has the proven ability and framework required to address asset classification and NPA reporting" as per the RBI norms.

The bank is trying its best to recover loans by holding video-conferences every alternate day with the zonal heads. It has reduced NPAs to the tune of Rs 1,200 crore in January and February, said finance ministry sources.

This included recovery of Rs 400 crore and upgrading accounts involving Rs 800 crore. The finance ministry is monitoring the recovery of bad loans on a daily basis.