BS Reporter | Kolkata March 4, 2014 Last Updated at 00:50 IST
Barclays says loan growth, Casa ratio and exposure to sectors under
pressure did not indicate any stress
The crisis at Kolkata-based lender United Bank of India (UBI) appears to have
baffled analysts, as there were no red flags that could have warned investors of
the stress in the lender’s portfolio.
The public sector bank (PSB) is struggling with mounting losses, deteriorating
asset quality and low capital adequacy ratio. With a massive rise in bad loans
over the last two quarters, its capital adequacy ratio declined to 9.01 per cent
according to Basel-III norms.
Three analysts — Anish Tawakley, Jatin Mamtani and Sumit Jain — with Barclays,
wrote in a recent note to clients: “Identifying the red flags, of course, could
serve as a useful screening tool for investors. Surprisingly, UBI’s credit growth
rate, lending yield, Casa (current account savings account) ratio and stressed
sector exposure did not provide any adverse signals. In fact, its Casa ratio is
among the best among public sector banks and on lending yields it is at the
lower end of the range.”
The state-run lender had closed the previous financial year (FY13) with a Casa
ratio of 39.7 per cent — third best among PSB’s after State Bank of India (SBI)
and Bank of Maharashtra. The strong base of low-cost Casa deposits allowed
the bank to offer loans at relatively lower rates than its peers. UBI’s average
lending rates were below domestic lending rates of Punjab National Bank (PNB),
Bank of Baroda and Bank of India.
“Thus, its lending rates would not suggest it would have suffered adverse
selection, i.e. only being able to attract risky borrowers... Its loan growth was
even slower than some of the large PSBs. The share of its loans to stressed
sectors (such as infrastructure, metals and mining, textile, construction, gems
and jewellery and agriculture) was also only slightly higher than the system/peers,”
the analysts noted.
The only stand-out feature of UBI’s profile was that its network and credit
exposures had a strong skew towards eastern and north-eastern states.
“However, given the strong economic growth in these states it is not clear
that this should be seen as a red flag. We could not identify any other
quantifiable factors that would make UBI a special case,” the analysts said.
UBI’s loss more than doubled to Rs 1,238 crore in the October-December
quarter. Fresh slippages topped Rs 3,000 crore, increasing the lender’s
gross bad loans to Rs 8,546 crore at the end of the last quarter. RBI had
recently conducted an audit to examine the factors that contributed to the
lender’s rise in non-performing assets and capped the loan sanctioning
power of the bank to Rs 10 crore, pending further instructions.
“Given the uncertain macroeconomic environment, most PSBs have been
witnessing a sharp deterioration in credit quality. UBI was no exception.
But we did not foresee the situation that the bank is currently witnessing.
Still, a lot of clarity is awaited. On one hand, there is a sharp rise in bad loans,
on the other, there are claims of management overstating the bank’s
non-performing assets,” a banking analyst with a local brokerage said,
asking not to be named.
Archana Bhargava, who became the chairperson and managing director of
UBI in April 2013, opted to resign within 10 months of taking charge. The
official reason cited was ill-health, even though talks of mismanagement and
growing rift with senior executives were getting louder.
“The bank needs to get more capital and step up its loan recovery efforts
dramatically. The NPAs are way above normal level. The bank should also
ensure that the credit appraisal process is strong,” Vaibhav Agrawal,
vice-president (research) – banking at Angel Broking, said.
