The bank believes growing its loan book is essential for growth in its operating profit in order to come out of the RBI’s Prompt Corrective Action (PCA) framework.
Public sector lender United Bank of India thinks that the fresh capital infusion of Rs 2,159 crore into it from the government is not likely to provide sufficient ‘comfort’ for growing its loan book after fulfilling regulatory capital adequacy requirements. The bank believes growing its loan book is essential for growth in its operating profit in order to come out of the RBI’s Prompt Corrective Action (PCA) framework.
Talking to FE, Ashok Kumar Pradhan, MD and CEO of the Kolkata-based lender, said his bank is likely to approach the government for additional capital in the fourth quarter for the loan growth.
“The current capital infusion will essentially be looking care of the losses the bank had incurred in the last two quarters, and may be in the third quarter. If the government infuses additional capital in the fourth quarter, that would provide us some comfort to grow our loan book after fulfilling regulatory requirements in terms of Basel-III,” Pradhan said during an interview. “A bank can only come out from PCA framework only if it can grow. Without loan growth, a bank’s operating profit is not going to increase.”
Interestingly, United Bank was expecting a capital infusion of around Rs 2,600-2,700 crore from the government this time. Notably, the government has decided to infuse Rs 2,159 crore in equity capital of United Bank of India by preferential allotment as part of fresh capital infusion to be done in about half a dozen banks. The capital infusion announcement by the bank on Thursday evening sent its shares up 9.19% on Friday.
In the second quarter this fiscal, net loss of the bank had widened to Rs 883.17 crore due to a fall in its operating profit and a rise in provision to cover bad loans, against Rs 388 crore in the first quarter. It had registered a net loss of Rs 1,454.44 crore in the last fiscal. During the second quarter of FY19, the bank’s loan book had decreased by 2.5% year-on-year because of shrinking of corporate loan book by 7.33% y-o-y. Under Basel-III norms, capital adequacy ratio stood at 7.82% as on September 30, 2018.
According to Pradhan, his bank may opt for a qualified institutional placement in the first quarter next fiscal if it does not get additional capital from the government in the last quarter this fiscal. “The additional capital will provide us a little bit of comfort for growing the loan book,” he said. He is confident of reporting a quarterly profit for the lender in the fourth quarter of this financial year.
The bank, which is focussing on creating assets, looks to grow its MSME and retail loan portfolio. For MSME loan growth, it has recently created Central Processing Hubs in ten different centres to support bank branches in terms of loan sanctions.
On asset quality front, the MD said he was not too much concerned about fresh slippages as those were “not much” in the ongoing October-December quarter.