The Hindu Business Line : United Western Bank placed under moratorium

The Union Government on Saturday placed United Western Bank Ltd under a moratorium based on an application from the Reserve Bank of India. The moratorium will run from September 2 to December 1.

While under moratorium, depositors will be allowed to withdraw a maximum of Rs 10,000 at any of the bank's branches. Customers will not be able to use the ATMs of the bank or shared ATMs with other banks.

In exceptional circumstances, depositors will be allowed to withdraw more than Rs 10,000. This includes medical treatment, higher education, marriage expenses or any other emergency.

Rationale for action

The central bank is considering various options including amalgamation of United Western Bank with another bank.

Explaining the rationale behind the action, Mr Anand Sinha, Executive Director, RBI, said, "In general, one can say it was inefficient management of the bank. In the last two years, huge losses were made, leading to erosion of the net worth and negative capital adequacy ratio.

"Its net worth fell below the prescribed limit of Rs 300 crore. The depositors' interest was in jeopardy."

During 2004-05, the bank reported a net loss of Rs 98.64 crore and climbed to Rs 106.48 crore in 2005-06. For the quarter ended June 30,the bank reported a net loss of Rs 6.08 crore.

While the bank showed a capital adequacy ratio of 0.67 per cent, the RBI felt it was minus 0.3 per cent. The minimum capital adequacy is 9 per cent.

As on July 31, the gross NPAs stood at Rs 493 crore (13. 84 per cent) and net NPAs at Rs 201 crore (6.16 per cent). This is against the peer group average net NPA of 1.97 per cent.

Established in 1936, the bank is headquartered in Satara, Maharashtra.

It has 230 branches, 12 extension counters and 75 ATMs, mostly in Maharashtra. It has approximately two million account holders. The Chairman of United Western Bank, Mr Satish Marathe, resigned on July 31.

Second rights issue

The bank, which is listed on the Bombay Stock Exchange, recently proposed a second rights issue. From the first rights issue made in March 2006, the bank could only garner Rs 42.96 crore.

When asked about why RBI had not waited till the second rights issue, Mr Sinha told the press, "the chances of the second rights issue succeeding were doubtful. With the money that would have been raised, it would not have been possible to reach the 9 per cent capital adequacy ratio."

On amalgamation, Mr Sinha said, "We will examine all proposals that come to us dispassionately. Generally, the preference is always for a merger with a bank as it is efficient and quick," he added. Due to the bank's high NPAs, the RBI placed it under monthly monitoring from June 2001, Mr Sinha said.

The bank's critical parameters relating to capital, asset quality, investments, off-balance sheet exposure, earnings, liquidity, compliance with directions, etc were closely monitored.

RBI directions

RBI also came up with a set of 13 directions to the bank on January 27, 2003, relating to maintenance of capital adequacy, reduction of high cost deposits, trimming NPAs and restriction on opening of branches.

RBI had advised the banking entity to augment its capital and meet the prescribed capital adequacy but the bank did not come up with a credible plan.

When asked about independent directors showing interest in infusing capital into the bank, Mr Sinha said, "Every proposal that came to us was subject to due diligence. Since it did not measure up to our criteria we did not permit it".

Shares of United Western Bank Ltd closed at Rs 22.45 on Friday on the BSE against Rs 22.40 on Thursday. Public shareholding in the bank stands at 57.69 per cent.

Among the big stakeholders are banks, FIIs and insurance companies with 14.67 per cent and Sicom Ltd with 9.92 per cent.

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