Ratings agency CRISIL said the rating for United Bank of India’s tier-II bonds (‘AA+’) and Tier-I perpetual bonds (‘AA’) continue to be on a “watch with negative implications”.
The operations of the Kolkata-based public sector bank, saddled with a huge amount of bad loans, showed signs of stablisation in the final quarter of 2013-14. However, its ability to sustain this performance and raise fresh equity to shore up its capital, both from external investors as well as from the Government of India, will remain critical in the near term, CRISIL said.
Further, removal of lending restrictions by the Reserve Bank of India remains a key monitorable. Hence, the “watch with negative implications”.
The bank’s focus on collections and recovery over the past few quarters led to a reduction in the absolute level gross non-performing assets (NPAs) in the last quarter of 2013-14. Gross NPAs declined to Rs 7,110 crore in March from Rs 8,546 crore at end-December 2013.
The bank turned profitable in the quarter ended March, with profit of Rs 470 crore as against a loss of Rs 1,240 crore in the quarter ended December 2013.
Despite the improvement, internal accruals are likely to remain subdued in the near term. As a result, the bank will need to raise additional equity for growth, said CRISIL.
The bank has announced plans to raise Rs 1,300 crore through qualified institutional placement and preferential allotment to Life Insurance Corporation or any other funds.
Asset quality and the earnings profile continue to remain weak. It reported a net loss of Rs 1,210 crore in 2013-14 as against a profit Rs 360 crore for 2012-13.