Friday, July 10, 2009

How will United Bank of India Fare This Year?

A once award-winning bank for its support for farmers, self-help groups (SHGs), rural job creation, and NREG, Kolkata-based United Bank of India will be tested this year with major challenges like capital restructuring, initial public offer (IPO), non-performing asset (NPA) sale, a major recruitment drive, and a still-to-improve capital adequacy ratio (CAR). Under Chairman & Managing Director SC Gupta, this North-East focused bank has introduced policies like personalized biometric smart cards for farmers, and is taking a leadership role during local crises like the recent Aila hit. Seasonal Magazine checks the strategies of United Bank of India through an interview with SC Gupta who is qualified in banking, law, & engineering:

Seasonal Magazine: Why can’t United Bank of India go for its IPO with the current EPS and book value? Why do you need to reduce your capital base artificially to tweak at these figures?

SC Gupta:
United Bank of India is in a peculiar situation in respect of its capital structure. While various other banks in the Industry had adjusted major portion of their losses against the Capital, thereby bringing down their capital to manageable and serviceable size, our Bank did not set off the accumulated losses amounting to Rs 1434 crore as on 31.3.1997 against capital and continued to adjust the accumulated losses from profit over the years 1997-2005 totaling to Rs 1156 crore. Thereafter, on a request made by the Bank, the Government of India allowed writing off the reduced accumulated loss of Rs 278 crore against the capital during 2005-06 bringing down the equity capital to Rs 1532 crore as on 31.3.2006. It is very clear that with such a bloated size of capital the Bank cannot go for an IPO, since the current EPS and book value of share with such large capital base would not be attractive to the investors. After the restructuring of capital , as approved by government, our equity capital would reduce to Rs 266 crore which will be comparable with other banks in the industry and which would enable us to tap the Capital Market at a suitable time.

Seasonal Magazine: Why couldn’t United Bank of India meet the mandatory norm of 40% of Adjusted Net Bank Credit (ANBC) to priority sector last year?

SC Gupta: As on March 2009, priority sector advances of the Bank stood at 41.8% of ANBC which was above the national target of 40%. Our priority sector advances grew by 17.3 percent during 2008-09 to reach Rs 11757 crores as at the end of March 2009. Lending to agriculture , MSEs and other priority sectors has been our focus area.

Seasonal Magazine: Are you worried that World Bank pre-conditions will delay Government’s capital infusion to shore up your CAR?

SC Gupta:
The Capital Adequacy Ratio (CAR) of the Bank as on 31st March 2009 stood at 13.28%. We do not apprehend delay in Government’s capital infusion in the banking system as a whole. The Government has permitted our Bank to restructure the Capital and has also subscribed to the PNCPS issued by the Bank. It is expected that there will be further capital infusion by the Government. Apart from this we are also planning to come out with our IPO during the current financial year. Moreover, we have the option of raising fresh Tier II capital against the headroom available if necessary. These together with our internal generations will provide us sufficient capital to maintain at least 12% CAR .

Seasonal Magazine: United Bank of India is reportedly contemplating auctions for 100 NPAs worth Rs 300 crore. With ARCs still not eager to lap up NPAs, what will be your strategy?

SC Gupta:
Recovery of NPAs is one of our top priorities. We are taking all possible steps in this direction. Organising recovery camps on a regular basis, personal follow-up of large NPAs by the executives of the Bank, making compromise settlement as per the extant guidelines , resorting to legal actions including using SARFAESI Act are some of the initiatives taken by the Bank for recovery of NPAs. As a result of these initiatives the Bank has been able to achieve a gross reduction of NPAs to the extent of Rs 552 crore during 2008-09. In addition, the Bank has been exploring the possibilities of selling NPAs to the ARCs. We have placed NPAs worth Rs 300 crore to the ARCs and after examination of the offers received thereagainst the Bank finally accepted and disposed of NPAs worth Rs 86 crore during the current financial year. The Bank has further placed NPAs worth Rs 162 crore to the ARCs which is under examination at their end. Decisions will be taken in this regard on receipt of offers from the ARCs against such amount.

Seasonal Magazine: United Bank of India has announced recruiting 1500 new employees this fiscal. How do you rationalize this move in a difficult year, even while being unable to impose a pay-per-performance wage structure as in private banks?

SC Gupta:
Every vibrant organization needs proper succession planning. Process of recruitment of 1000 officers and 500 clerks has been commenced by the Bank to fill up a part of the huge vacancies which will be created out of mass retirement during next three years. Secondly induction of tech-savvy new generation of workforce and talent pool would rejuvenate our existing strong and dedicated workforce and would add more value to the organisation. Thirdly our business is thriving in leaps and bounds . To match our growth we are in recruitment spree. The “difficult year” should not be a deterrent to such recruitment. In fact, the banking sector has emerged as the biggest job generator in the current fiscal. Lastly, this recruitment would also be cost effective in the sense that the wage bill of the incoming workforce would be much less than that of retiring employees who have reached the highest pay scale. Our recruitment programme is well planned and need based.

Seasonal Magazine: Serious concerns have recently been raised about PSBs resorting to mass restructuring of loans to temporarily whitewash NPAs from the balance sheet. Won’t they come back to haunt you in the next balance sheet? What is your take on this?

SC Gupta:
Restructuring of loan is an effective and established tool to support the borrowers at the time of their temporary crisis. To overcome the present economic turmoil the Reserve Bank of India has come out with specific guidelines on this score. To support the affected borrowers from the impact of sagging economy banks have gone for restructuring of loan accounts as per the guidelines of RBI. As United Bank of India has restructured eligible accounts having assets and considering genuine needs of the customers and viability of the projects to overcome the temporary crisis, this should not pose problems in future.

Seasonal Magazine: How will you counter the allegation that PSB’s performance is largly driven by government compensating for non-performing agricultural loans, as well as large government funds like the NREG switching to PSBs for disbursement, thereby forcing millions of hitherto unbanked to open accounts?

SC Gupta:
Government’s relief measures to farmers by way of Agricultural Debt Waiver and Debt Relief Scheme 2008 is a boon to those farmers who have been struggling to repay their loans. This has no doubt created momentum in the recovery front of banks’ agricultural loans. For United Bank of India the proportion of NPAs out of the eligible amount is small. Further ,we have been extending fresh loan to the eligible farmers benefited under the scheme. For our Bank the total amount eligible for reimbursement from the government is only a small part of our vast advance portfolio and has negligible impact on the overall performance of the Bank. NREG is a reliable relief measure and a useful tool to bring into the main stream sections of population that feel alienated because of serious underdevelopment. United Banks of India's services to this segment is a continuous process. We have adapted our strategies to tap the opportunities and meet the challenges. One of our avowed goal is to serve the unbanked areas and the down-trodden people to translate the growth into reduction of poverty- i.e., the growth to which the poor contribute and from which the poor also benefit. Disbursement of government fund may be an opportunity to reach such people but that’s not the end. In the banking system people’s participation in large number can be ensured by building relationship and promoting banking habit for inclusive growth. Our performance is propelled by our strategies and staff commitment.


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