The Reserve Bank of India (RBI) is likely to put a hold on United Bank of India's branch expansion on the back of rising bad loans even as the state-run lender posted a Rs 74 crore net profit in the fourth quarter.
The steady rise of stressed loans have placed United Bank of India (UBI) under the second category for breaching the risk limit under the Prompt Corrective Action (PCA) measures issues by RBI last month, reported The Economic Times.
The second category threshold limit for net NPA is 9 per cent, which UBI crossed. The bank's net NPA ratio rose from 9.04 per cent to 10.02 per cent and may be given directions by RBI for better management of credit and capital.
UBI's non-performing assets rose to Rs 10,952 crore as on March. Gross NPA ratio, however, deteriorated from 15.53 per cent to 13.26 per cent during the same period.
If the apex bank goes ahead with the decision to check the expansion of UBI's branches, it would be the second time in four years that the bank came under fire and has been compelled to take corrective measures. In 2013, RBI had placed restrictions on the bank to lend after the Chairperson Archana Bhargava had alerted accounting malpractices.
Further, UBI will also be barred from distributing profits to its shareholders despite posting a net profit against a Rs 413 crore loss in the year ago period.
UBI's Managing Director Pawan Kulmar Bajaj has reportedly flown to Delhi to discuss the bank's turnaround plan with the Finance Ministry.
The ministry is currently expecting 10 banks to submit their revival strategy this year.
As a part of RBI's plan to tackle the stressed banking system in India, it has highlighted four risk areas which include recurring losses and capital erosion as indicators, if breached, to invoke PCA.