Govt may infuse capital to shore up lender

Written by fe Bureau | Mumbai | Updated: Feb 13 2014, 09:11am hrs
The government may infuse capital into troubled public sector lender United Bank of India, after it posted two consecutive quarters (Q2FY14 and Q3FY14) of net losses, amounting to R1,728 crore. A senior official at the finance ministry said it would, however, wait for the bank to make some recoveries. Sources also said that finance services secretary Rajiv Takru had a meeting with RBI deputy governor K C Chakrabarty on Wednesday to discuss United Bank.

The banks tier 1 capital adequacy ratio was 5.59% in the December quarter, much below the requirement of 7% under Basel III.

Earlier this week, the bank decided to suspend its loan facilities for an indefinite period, owing to high level of stressed assets and the diminished capital adequacy. Only agricultural loans, loans against deposits and staff loans that carry very low risk will be given for the time being.

The RBI, in December 2013, had restrained United Bank from advancing credit of more than R10 crore to a single borrower and also restricted it from restructuring stressed assets, after conducting a forensic audit in November. Analysts said the quantum of capital needed by the bank would depend on its performance in the coming couple of quarters. For instance, if the net loss widens, the bank would then need more capital to get out of trouble. However, analysts said that United Bank was looking to raise R1,000 crore to meet capitalisation requirements.

The first plan of action is to ensure that the bank recovers some of its NPAs swiftly. After that the government will consider infusing some capital, the official said on condition of anonymity.