UBI collapse suggests no one was doing his job
Infusing around R800 crore of equity, as the government has suggested, could possibly help the beleaguered United Bank of India (UBI) increase its Tier-I capital ratio from the current 5.6%. And, as RBI has suggested to the finance ministry, superseding its board can help pave the way for a new management; merging it with an existing bank, as RBI has done with other troubled banks in the past, is another solution. While it is true that secret RBI inspection reports are not made public, it is amazing that things could have been allowed to come to such a pass without action being taken to stop it. After all, the bank has government nominees on the board and regular RBI inspections should have thrown up something. Yet, the news of the serious problems in the bank came to light only when the bank reported its R1,238 crore loss for the October-December period. But surely the bank’s portfolio of non-performing assets—they stood at R8,545.5 crore, at the end of December, 2013 and added up to 10.82% of its loan book—weren’t built up in a day.
While it is true that NPAs have shot up across public sector lenders over the past year, in the case of United Bank of India, these have nearly trebled between December 2012 and December 2013 and more than doubled between June and December. Yet, neither the government nominees nor the central bank appears to have thought it important to look into the matter at the end of June or even September when the bank’s provision coverage ratio had dropped to as low as 48% and the fresh slippages had more than doubled sequentially to R2,470 crore. In which case the finance ministry needs to explain why it, or RBI, didn’t take a closer look at the bank’s loan book and ask for a daily status on bad loans or potentially troubled loans at the time? Keeping a daily watch on recoveries now is all very well but it might have been simpler if the finance ministry and RBI had not taken their eye off the ball in the first place.
This is where RBI’s new loan tracking system should help, not just in the current case, but also in the case of other potential United Banks. A new category of assets called Specially Mentioned Accounts (SMA) will help banks track borrowers who are even 30 days late on their payments of principal or interest. A delay of over 61 days would necessitate the setting up of a Joint Lenders Forum (JLF) to review the account; currently, a loan is classified as an NPA only if the payment is delayed by more than 90 days. For the system to work, however, bankers must support each other in taking quick decisions. The central bank has offered banks incentives to fix the problem and they should make use of them.