United Bank of India's loss will test Basel III aproach: Fitch

KOLKATA: The losses incurred by state-run lender United Bank of India could see its capital ratios fall below the regulatory minimum, and test the authorities' approach to bank regulatory capital instruments in the present Basel III era, global rating company Fitch said Tuesday.

United Bank of India's capital adequacy ratio at the end of the December quarter was at 9.01% under Basel III framework, a tad above the 9% stipulation fixed by Reserve Bank of India, while the tier 1 capital fell below the required 6%, forcing the bank suspend lending activity for indefinite period.

The fall in capital adequacy is the first instance within Asia since the implementation of the Basel III framework. Fitch said a number of state-owned banks are considering raising fresh regulatory capital in the international market to withstand the capital pressure.

"The authorities face a dilemma, and their response could set a credit precedent," Fitch said in note issued on Tuesday. UBI's capital adequacy ratio under Basel II was 9.93%.

Fitch said that UBI's compounding losses could exacerbate the risk for investors.

"The RBI, like many other regulators, has not clearly defined the point of non-viability under Basel III. If these challenges persist, we would expect the RBI to allow capital ratios too fall further in an effort to find a resolution before triggering the point of non-viability, which could include a fresh capital injection."

The government has injected Rs 700 crore this financial year to capitalise state-run banks.