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Wednesday, February 26, 2014

Rs 100-crore realty loan may have cost UBI chief Archana Bhargava her job

Archana Bhargava may have had to quit unexpectedly last week as chairperson of United Bank of India because of a Rs 100-crore loan to a real estate developer despite opposition within the board, two officials told ET.

In late 2013, 10 general managers of the Kolkata-based bank had complained to both to RBI and the finance ministry that Bhargava had okayed the loan by overriding the board's dissent. The Reserve Bank of India has placed curbs on the bank giving loans of more than Rs10 crore to a single account due to its mountain of bad debt. "We are under a lot of stress. We cannot comment on this," said executive director Deepak Narang.

RBI and government officials confirmed that the complaint had been routed through independent director Sunil Goyal, who declined to comment. Bhargava resigned on February 22 citing health reasons. Agovernment official aware of developments said both the government and RBI were agreed on the course of action regarding Bhargava.

"Financial services secretary Rajiv Takru and RBI governor Raghuram Rajan were on the same page on the issue... A staterun financial institution cannot be in a mess for long. And UBI's downfall was way too fast," said the official, reflecting on the bad loans of the bank which surged threefold to Rs8,546 crore at the end of December from Rs2,964 crore in March. Gross non-performing assets (NPAs) touched 10.82% of total loans at the end of December.

Bhargava has chosen to stay silent and not defend herself throughout the controversy amid conflicting reports about what exactly her role was. Some have depicted her as being over eager to clean up the bank's bad loans and riding roughshod over those who disagreed with her.

At one point the bank also blamed the spike in non-performing loans on the software it was using, although it seemed to step back from doing so in later statements.

According to some officials, the finance ministry and the RBI weren't convinced about Bhargava's efforts to cleanse the system. "Earlier, it was felt that she was setting the books right as most chairmen of state-run banks do when they take over. But then, complaints against her of both financial and personal mismanagement started flowing in," said a senior government official.

The forensic audit by RBI in November raised two issues, said a central bank official. "It was mentioned that some of the accounts were restructured without a viability study and some accounts, which were not eligible for special dispensation, were not downgraded," he said. The government is yet to appoint a new chairman but both RBI and finance ministry officials accept that it will be a tough task for the next incumbent.

"We cannot supersede the bank's board, after all it's a staterun bank. The government will have to infuse capital and put pressure on recovery," said the RBI official cited above. "An administrative inquiry is under way as to why these NPAs were under-reported or disguised.

NPAs have to be addressed. If there is a lapse then responsibility will be fixed," financial services secretary Rajiv Takru said.

Source: Economic Times
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Nabard chief rules out NPA bubble in regional rural banks

In spite of slackening growth and upcoming elections, Nabard said the regional rural banks (RRBs) will be able to maintain their gross non-performing assets this fiscal at the last year level of 6 per cent and will improve it to 5 per cent by the end of June.

"We think all the 57 RRBs as a whole will have gross NPAs of 6 per cent, the same as that on March 2013. We have also set them targets to improve it to 5 per cent in the next three-four months," Nabard Chairman H K Bhanwala told reporters here after a meeting on RRBs.

Nabard or the National Bank for Agriculture and Rural Development, supervises the conduct of RRBs.

The gross NPA ratio of RRBs rose to 6.08 per cent as of March 2013 as against 5.03 per cent in the year-ago period and 3.75 per cent in FY2010-11.

A senior Nabard official said all RRBs have been individually asked to formulate guidelines and get those approved by the boards in order to bring down the gross NPAs under the 5 per cent mark.

During the nine months ended December 2013, the number of RRBs having their gross NPAs above 5 per grew to 40 from the 38 in March 2013, according to data released by Nabard.

Asked if the elections -- which may lead to people not servicing the loans -- are a concern, Bhanwala said it is a non-issue as election is a regular affair in our country.

However, a senior Nabard official said during the meeting it has requested the government, which was represented by the financial services secretary Rajiv Takru, "to make a statement" to ensure that the elections do not cause any troubles in loan servicing.

The outstanding books of the 57 RRBs had stood at over Rs 1.37 trillion in March 2013, of which Rs 1.02 trillion were to the agriculture and allied sectors.

Bhanwala said the process of migrating to the core banking solution has been completed at all the RRBs and added for the next fiscal, they have been asked to focus on installing ATMs at those branches which witness over 100 transactions per day.

"The first phase of CBS is over. But the work should not stop there, we should now leverage on the benefits of it," he said, adding Nabard gave grants for implementing the CBS solution.

Barring one bank from Nagaland, Bhanwala said all the RRBs are now profitable, while 95 per cent have their capital adequacy ratios above the RBI-mandated 9 per cent mark.

He said at the meeting, Takru stressed on the need to let the market determine the price and conditions for the sale of RRBs' portfolios qualifying as priority sector lending, rather than the current practice of the sponsor bank taking over those assets.

Source: Economic Times
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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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