Banks seen reducing exposure limits to Centurion Bank, four PSU banks

Srikesh P Menon & Ujjal K Basu Roy

Mumbai, Oct 17: Centurion Bank is believed to have joined the list of banks whose ‘exposure limits’ in the foreign exchange (forex) and call money markets have been reduced by other banks.

Most banks who used to or currently trade with Centurion Bank may have lowered or discontinued their exposure limits. Some time ago, banks across the spectrum had revised or lowered their exposure limits to United Commercial Bank (Uco), Indian Bank, United Bank of India (UBI) and Dena Bank. These public sector banks are in bad financial shape and the government has refused to bail them out.

Centurion Bank has been sailing through troubled waters for quite sometime now. The bank has not been successful in roping in a strategic investor for picking up its promoter’s stake. It has not found a suitable individual for the managing director’s post either.
Banks usually lower or revise their exposure limits to certain banks if they foresee problems with trading with such banks.

Private, state-run and a few foreign banks were said to be trading with Centurion Bank on a regular basis. However, sources said a few foreign banks have stopped dealing with the bank altogether.

On an average, Centurion bank borrows around Rs 150 crore to Rs 400 crore through the call money market, depending on the rates. The bank is said to have reduced its call dependency, apparently to comply with the 20 per cent cap placed by the central bank on all banks. It has been a bad year for Centurion Bank with its rights issue of Rs 128.08 crore flopping a few months ago. Its net profit fell by 79.5 per to Rs 7.02 crore in 2000-2001, down from Rs 34.33 crore. The bank registered a net loss of Rs 26.16 crore for the fourth quarter ended June 30, 2001 as against a net profit of Rs 17.83 crore for the same period last fiscal.

Three of the PSU banks - Uco, Indian Bank and United Bank of India - had sought a total of Rs 2,200 crore from the government to meet the stipulated capital adequacy norms. While the banks are required to meet certain pre-conditions to receive capital from the government, the committee set up under RBI deputy governor SP Talwar on weak banks has recommended a strategy for the same. Most bankers and analyst feel that a cash-strapped government will not provide any recap funds even this year.