United Bank of India (UBI) has scripted what has to be the most stunning turnaround in recent times; from losses of R1,238 crore in Q3FY14 and R489 crore in Q2FY14, the Kolkata-headquartered bank has reported a profit of R469 crore in Q4FY14. On the face of it, the recovery seems too good to be true. How, for instance, has the bank reduced its gross NPAs by R2,592 crore and upgraded R1,488 crore of NPAs to standard assets in the span of just three months? And if it was that simple to recover money from borrowers and convince them to pay up on time, how is it other banks aren’t able to do the same?
The management has attributed the sharp fall in the NPAs and the big quantum of upgradations to a change in its approach to asset classification. Earlier the bank would actually downgrade a loan to an NPA even while the account was being scrutinised by the Corporate Debt Restructuring (CDR) cell. Moreover, the bank participated in very few loan recasts. That approach has apparently changed over the past few months with the bank’s board now approving more restructuring agreements, thanks to which a big chunk of loans has been upgraded. While that doesn’t necessarily mean the quality of assets has improved, United Bank can justify its stand on the grounds that every other bank is doing the same thing. While the gross NPAs may have come off sharply in the process—some part of that was also the result of a huge write-off—given the stunted loan growth, as a share of assets, the ratio remains a high 10.5%. Which is why the bank would have done well to maintain a higher provision coverage ratio instead of just 52.25% and not been in such a hurry to report a profit.
Indeed, it seems unlikely the bank will be able to sustain the momentum when it comes to the recoveries—the R645 crore is probably the highest ever in a quarter, and is more than twice the amount recovered in Q3FY14, which in itself was much higher than in previous quarters. Under the circumstances pruning the provisions to just R267 crore in Q4FY14 when it has gross NPAs of R7,100 crore seems imprudent. After all, a big chunk of the impaired loans of close to 40% are from the agriculture and medium and small-scale sectors and given the current environment, recoveries