The Reserve Bank of India is expected to direct United Bank of India, which has seen erosion of capital due to bad loans and higher provisioning, to take prompt corrective action. The bank will be required to devise and implement a capital restoration plan, and restrict expansion of risk-weighted assets. It will also not be allowed to enter new businesses, while being barred from accessing high-cost deposits. Also, there would be no dividend payment. RBI normally enforces such corrective measures when NPA ratios increase beyond a certain level and capital falls below the mandated one. UBI had reported a net loss of Rs 1,238 crore in September-December 2013, as compared to Rs 42 crore of profit during the same period of 2012. This was due to a 500% increase in provisioning, to Rs 1,783 crore. However, a large part of the provisioning was also due to wages and benefits to employees, seen as a one-off item. After the bank had posted Rs 489 crore of loss in the second quarter, the RBI had ordered a forensic audit by an external agency. This report was given a few days earlier. Based on the observations, the central bank will order the future course of action. Improper credit appraisal is said to be one of the reasons for the high levels of NPAs in the bank. The bank had also charged that the technology used by it had been responsible as it was found to have been manipulated (flagged items were hidden) by branch staff, to suppress NPA. It had intially accused deficiencies in Infosys’ Finacle software but then took a U-turn and issued a joint statement with the software company, saying there were no issues with Finacle’s NPA tool.
