United Bank of India will soon stop granting loans. The bank has already suspended all lending activity for an indefinite period, barring exceptions such as crop loans. The bank has some 10% bad loans and has sustained net losses for two straight quarters. It is also facing problems of capital adequacy. Its ratio of bad loans to total lending is the worst in the industry. The bank’s tier 1 capital has fallen below 6%, which is the stipulated regulatory requirement, prompting the decision to stop lending, according to bank officials. Only agricultural loans, loans against deposits and staff loans that carry very low risk will be given for the time being. The RBI is already investigating the bank for its lending practices and the regulator is expected to issue a formal circular on the stopping all loans. The move will make it even more difficult for the bank to turn itself around and become profitable, forcing it rely heavily on the sale of insurance products of others and treasury operations for income. Treasury and other operations contributed about 9% of the bank’s profit in the December quarter.The bank has incurred a loss of Rs1238 crore in the December quarter compared with Rs42.20 crore net profit in the year-ago period.
