Reserve Bank of India lifts lending ban on United Bank of India

KOLKATA: The Reserve Bank of India ( RBI) has removed the lending restriction on United Bank of India (UBI) after the lender demonstrated an ability to arrest bad loans after its chairman’s exit last year amid record non-perfoming assets.

The bank is now allowed to do business like any other bank in the country, allowing it to grow advances when the economy is showing signs of revival, as it strengthened its capital position and reported net profits for four consecutive quarters. It can also participate in loan recast proposals of ailing firms, the RBI said.

“We are elated. This is the result of the effort that our 16,500 employees had put in for the past 12 months,” UBI executive director Sanjay Arya told ET.

“The RBI’s decision shows that the regulator is now confident about UBI. The stigma of a weak bank has now gone,” Arya said. The banking regulator lifted the restriction on Wednesday, UBI said in a filing with the NSE. There is a caveat though: UBI has to maintain CRAR (capital to risk weighted assets ratio) above 9.5% higher than others and its credit to deposit ratio cannot exceed 70%.

The lender bounced back spectacularly in 2014 from a nadir with consistent focus on loan recovery, which helped it to trim its gross non-performing assets (NPAs) to Rs 7,809 crore at the end of December 2014 from Rs 8,546 crore a year ago.

The bank was guided by the government, its owner, and the RBI during the phase after its chairman ArchanaBhargava left the bank unceremoniously in February last year when the bank was going through the toughest period in a decade.

The RBI had asked it to follow a prompt corrective action and curbed its lending powers and barred it from going for branch expansion and hiring. The RBI has been lifting the ban in phases and completed the process on Tuesday.

The bank reported a Rs 1,238 crore loss in the December 2013 quarter and was saddled with Rs 8,545-crore bad loan, which was 10.8% of its total advances portfolio. Its capital adequacy fell to the minimum 9% and tier-1 capital fell below the mandatory 6% at the end of December 2013, prompting the management to suspend lending activity for a brief period.