United Bank of India Ltd. Chairman Archana Bhargava resigned amid a probe by the central bank and the government into bad loans at the lender.
India’s government, which is the biggest shareholder in the bank, has accepted Bhargava’s request for a voluntary retirement and will appoint a replacement soon, Rajiv Takru, the banking secretary at the Finance Ministry, said by telephone from New Delhi today. The government and the Reserve Bank of India are reviewing reasons for a surge in bad loans at the Kolkata-based lender, Takru said on Feb. 12.
Shares of the bank, which has the highest percentage of bad loans in the country, fell to the lowest on record in Mumbai trading after the ETNow television channel reported the resignation today. United Bank this month reported a loss of 12.4 billion rupees ($200 million) for the three months ended Dec. 31 as its capital adequacy ratio shrank to 9.01 percent.
“The resignation of the chairman hints that the regulator and the Finance Ministry are putting pressure on the management to clean up the balance sheet,” Vishal Narnolia, a Mumbai-based banking analyst at SMC Global Securities Ltd., said by telephone. “With the government holding more than 88 percent of the lender, investors are expecting a capital infusion.”
Shares of the bank fell as low as 23.40 rupees, the weakest in intraday trading since the stock’s debut four years ago in Mumbai, before trading down 0.8 percent to 24 rupees as of 12:51 p.m. United Bank has dropped 64 percent over the past year, compared with a 13 percent decline in the 12-stock S&P BSE Bankex Index.
Bhargava didn’t answer two calls made to her mobile phone. Soured debt at the lender jumped to 10.8 percent of total lending at the end of December, exchange filings showed.
The government may consider investing in the bank, which is ranked No. 39 by loans among 40 Indian lenders tracked by Bloomberg, to bolster its capital ratio, Takru had said, without specifying the amount of the injection or the timing.
Widening losses at United Bank increase risks for its investors, Fitch Ratings Ltd. said in a Feb. 11 note. Holders of its Basel II-compliant Tier 1 and Upper Tier 2 bonds may face an “automatic coupon deferral” under RBI regulations if the capital adequacy ratio falls below 9 percent, Fitch said.
The Indian government plans to inject 112 billion rupees of capital into state-run banks in the year starting April 1 to bolster risk buffers after bad loans climbed to a six-year high.
“Banks are under strain owing to rising nonperforming assets,” Finance Minister Palaniappan Chidambaram said this week in New Delhi as he presented the government’s interim budget for the year ending March 2015 to parliament. “Bankers have assured me that as the economy turns they will be able to contain the nonperforming assets and recover more loans.”
Soured loans at the nation’s banks climbed to 4.2 percent of total credit as of Sept. 30, from 3.4 percent last March, according to a Dec. 30 report from the central bank.