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Wednesday, February 26, 2014

United Bank’s woes increase as its Delhi branch sanctioned Rs 800 cr loans without verifying collaterals

United Bank of India, stricken by bad debt, may be bracing for worse as the state-owned lender is looking into the possibility of Rs 800 crore having been disbursed at one of its branches in New Delhi without making sure of collateral, according to two bank officials who didn't want to be named. The latest development comes after chairperson and managing director Archana Bhargava quit last week for health reasons, as the government got down to preparing an urgent revival plan for the lender.

The bank had sent ateam of investigators from its Kolkata headquarters last month to inquire into the matter.

The branch under scrutiny is said to have sanctioned lines of credit worth Rs 800 crore to around 150 accounts against bills that were discounted without verifying the underlying physical goods.

People aware of developments said the outstanding loan on these accounts was around Rs 300 crore when the team visited the branch. Bill discounting is a process in which banks buy the bill of exchange before it is due and give loans against its value after a discount charged to the customer's account. In UBI's case, sources said, the loans were possibly disbursed without proper verification of the transaction between the buyer and seller.

The bank didn't respond to ET's questions emailed last week. The state-run lender has been in a midst of one of its worst crises in a decade with sticky loans rising to an industry high of 10.8 per cent and two straight quarters of losses.

The government, which has an 88 per cent interest in UBI, said it is drafting a turnaround plan and told executive directors Deepak Narang and Sanjay Arya to jointly take charge until a new chairman was appointed.

The name of Punjab & Sind Bank's executive director Mukesh Jain is doing the rounds as a possible successor to Bhargava, but there's no confirmation on this. Regarding an inquiry into possible wrongdoing, financial services secretary Rajiv Takru said no such development had come to his notice.

According to a bank official in Kolkata who didn't want to be named, "These are accommodation loans. Bills were generated without any exchange of goods." Accommodation loans are given without verifying the borrower's credentials.

United Bank's bad loans amount to Rs 8,546 crore, so any addition to this will further strain the lender that is desperately trying to reverse its fortunes. Given the scrutiny that the bank has come under and the fact that the outstanding amounts are still classified as standard assets, not bad loans, the borrowers may repay the entire amount quickly, said some officials.

Source: Economic Times


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