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RBI relaxes cap on UBI’s loan limit power

United Bank of India (UBI), which scripted a turnaround by returning to profitability in the January-March quarter, has been allowed by the Reserve Bank of India (RBI) to consider loan proposals up to Rs 200 crore from ‘AAA’-rated companies. The banking regulator had capped the lender’s loan sanctioning power to Rs 10 crore following a rise in its bad assets and dip in the capital adequacy ratio.

The regulator has now relaxed the cap with some caveats. “The Reserve Bank of India vide its letter dated June 3, 2014, has allowed the bank to consider loan proposals up to Rs 200 crore taking exposure to AAA rate PSUs (public sector undertakings) and corporate borrowers subject to ensuring CD (credit-deposit) ratio not beyond 70 per cent and CRAR (capital to risk-weighted asset ratio) not below nine per cent as on June 30, 2014,” UBI said in a notice to the BSE.

The bank had approached the regulator seeking relaxation on the lending cap after improving its finances and firming up plans to raise fresh capital. UBI earned a net profit of Rs 469 crore for the quarter ended March, 2014, after reporting losses in the previous two quarters. The bank also plans to seek shareholders’ approval to raise Rs 575 crore in its annual general meeting on June 18, 2014. The lender closed the last financial year with capital adequacy ratio of 9.81 per cent, according to Basel-III rules.

“The primary reason for the cap was our low capital adequacy ratio. But now that our financial position has improved and we have plans to raise fresh capital, RBI has permitted us to consider loan proposals up to Rs 200 crore from AAA rate companies. This will ensure that we will not lose out on good business opportunities,” Sanjay Arya, executive director of UBI, told Business Standard.

He, however, added the bank will be cautious in lending and closely monitor the loan appraisal process to prevent further deterioration in its credit quality.

While UBI was able to cut bad loans in the January-March quarter, its asset quality continues to remain one of the worst in the industry. The bank’s gross non-performing asset ratio was at 10.47 per cent, while the net bad loan ratio was at 7.18 per cent at the end of March, 2014.

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