United Bank of India Ltd., the lender with the highest percentage of bad loans in the country, may receive a government capital injection to boost its risk buffers, Finance Ministry Banking Secretary Rajiv Takru said.
“We may consider investments to improve the capital adequacy,” Takru said in a phone interview in New Delhi today. “The Reserve Bank of India is looking for the reasons behind the sudden surge in non-performing loans. The priority will be to recover” those, he said.
He didn’t specify the size or timing of a possible investment. United Bank Chairman Archana Bhargava did not return two calls to her office phone by Bloomberg News today.
Widening losses at state-run United Bank increase risks for its investors, Fitch Ratings Ltd. said in a Feb. 11 note. Holders of United Bank’s Basel II-compliant Tier 1 and Upper Tier 2 bonds may face an “automatic coupon deferral” under RBI regulations if the lender’s total capital ratio falls below 9 percent, Fitch said.
The bank reported a loss of 12.4 billion rupees ($200 million) in the three months to Dec. 31, and its capital-adequacy ratio fell to 9.01 percent, the company said on Feb. 7. Soured debt at the Kolakata-based lender jumped to 10.8 percent at the end of December. That level is the highest among banks in India, according to data compiled by Bloomberg.
United Bank shares have fallen 60 percent over the past year, compared with the 16 percent decline in the S&P BSE Bankex Index, a gauge of 12 banking stocks.
In October, India announced plans to inject as much as 140 billion rupees into 20 government-controlled lenders to guard against soured loans in a slowing economy. The government put as much as 7 billion rupees into United Bank in December, the lender said in an exchange filing on Dec. 26.
The Indian government owns 88 percent of United Bank, according to data compiled by Bloomberg.