State-run United Bank of India has approached the RBI for further relaxation of lending restrictions imposed on it and for permission to lend more than R10 crore to AA-rated borrowers to boost lending. At present, the bank cannot lend over R10 crore to any company rated below AAA.
“We have recently applied to the RBI to allow us to lend more than R10 crore to any double A-rated company. Because in case of AA-rated companies there is very little probability of default,” executive director Sanjay Arya told FE.
Last year, the central bank had restrained the crisis-hit lender from advancing a loan of more than R10 crore to a borrower given the bank's worsening capital adequacy ratio, which stood at 9.01% under Basel-III norms by the end of the December quarter last fiscal against the minimum requirement of 9%.
RBI, however, recently relaxed some restrictions after the bank made a turnaround and reported a net profit of R469.37 crore for the March quarter last fiscal after posting losses in the previous two quarters.
In June, the apex bank allowed it to lend up to R200 crore to an AAA- rated PSU and corporate borrower. And earlier this month, it said the bank would be able to lend double the amount it recovers in cash from a company, irrespective of ratings.
The bank has sought further relaxation of prevailing restrictions as it would boost its lending activities. Significantly, the bank’s operating profit for the June quarter declined more than 4% y-o-y at R574.19 crore on the back of regulatory curbs on lending, although it posted a 47.31% y-o-y increase in net profit to R65.89 crore due to lower provisions and higher trading profit.
During April-June, total advances came down to R676.40 crore from R715.34 crore for the same period a year ago. “I think it is high time the RBI should relax its restrictions. We should resume normal lending activities,” Arya said.
He said the apex bank was “very comfortable” with United Bank’s recent performance. The bank has recovered more than R1,200 crore from bad loans in the first quarter of this fiscal. It was able to reduce its gross NPAs to R7097.44 crore at the end of the first quarter from R7118.01 crore at the end of the fourth quarter last fiscal.