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UBI may breach Basel III norms on capital ratios

United Bank of India is at risk of becoming the first lender in Asia to breach the minimal capital ratios mandated by Basel III norms after it posted a net loss its bad debts had increased, acording to rating agency Fitch. Any breach of the minimal total capital ratio, currently at 9%, could lead to a deferral of coupon payments for the bank’s tier 1 and tier 2 bondholders, going by Reserve Bank of India (RBI) regulations for Basel III-compliant debt, Fitch said. Indian regulators could also face a dilemma given the country has yet to specify its position in what are common Basel III rules, such as those mandating writedowns of debt or conversion to common shares when capital ratios are breached. Few bondholders in state-run banks have suffered losses given the implicit support from the government, Fitch noted, but it warned that only applied for bigger institutions and was ‘less clear-cut’ for small lenders such as the bank. The bank was the first state-owned bank in India to issue tier 2 Basel III after selling Rs 500 crore worth of bonds to Life Insurance Corp. of India in June last year.

The bank said its net loss in the October-December quarter widened to Rs1,240 crore from nearly Rs500 crore in the preceding quarter.

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