United Bank of India auditors shed no light on dipping asset quality

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United Bank of India Chairperson Archana Bhargava has quit citing health grounds, amid probes into misreported bad loans. United Bank of India Chairperson Archana Bhargava has quit citing health grounds, amid probes into misreported bad loans.
SummaryWithin 3 quarters, UBI reported a loss of Rs 1,238 cr and its capital adequacy dropping to 9.01 pt.

Just a year ago, the independent auditors’ report of United Bank of India (UBI) accepted the figures of the bank with only one minor qualifier — about the deferment of a pension liability of Rs 178.93 crore.

The audit report noted the “Profit & loss account, read with the significant accounting policies with the notes thereon, shows a true balance of the profit, in conformity with accounting principles generally accepted in India, for the year (FY13) covered by the accounts”.

Within three quarters UBI reported a loss of Rs 1,238 crore, its capital adequacy dropped to 9.01 per cent and its Tier I capital has dipped to 5.59 per cent from 8.4 per cent. Vibha Batra, co-head, financial sector ratings, Icra, said, “Going forward, the bank (will) continue to post losses given its large un-provided NPAs and its higher NPA generation rate”.

Essentially the agency is saying the problem did not emerge in the short run. The finance ministry too has said the same. “The rise in non-performing assets of UBI is not a sudden event. It is a collection of NPAs over a period of time that were not faithfully reported by the bank,” Rajiv Takru, secretary, department of financial services, told The Indian Express recently.

The Kolkata-based bank had claimed in FY 13 an 11.35 per cent growth in total business and a 12.9 per cent growth in deposits. It also announced a dividend payment of 21 per cent after a board meeting in May last year.

The five auditor firms of the bank are selected from a panel of auditors who are authorised by the RBI to do bank audits. In this fiscal, as per rotation, three of them are new.

In the same annual report (FY13) Archana Bhargava, who has now resigned from the post of CMD, had noted “Despite the challenges … Bank has fared reasonably well in all operating parameters.”

In the CMD’s message to shareholders (which is a part of the Annual Report 2012-13), she did note that the asset quality remained a matter of concern for the entire industry and UBI was no exception. “Some stresses were experienced in some of our bigger accounts which pushed out gross NPA level from 3.41 per cent to 4.25 per cent and net NPA level from 1.72 per cent to 2.87 per cent,” she said. It is now 7.44 per cent.

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