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Wednesday, September 06, 2006

RBI freezes accounts in United Western Bank

The Reserve Bank of India has suspended the operations of the Satara-based United Western Bank Ltd, the country’s 14th largest private-sector bank.
The ‘moratorium’ took effect at 2pm yesterday and will last until December 1, 2006. During this period, the bank’s 20 lakh depositors will get to withdraw a maximum of Rs10,000 from their accounts in this period. No ATM withdrawals are allowed.
Ashok Joshi, deputy general manager, department of banking operations and development, told DNA that account holders facing an emergency, such as those of a medical nature, can withdraw up to Rs1 lakh by applying to the RBI through their United Western branch.
The RBI move came about because of losses posted by UWB for the past two financial years, growing non-performing assets, and inability to raise fresh capital to improve its capital to risk-weighted assets ratio (CRAR), which was -0.3 per cent as on June 30, 2006, jeopardising depositors’ interest.
CRAR is the margin by which depositors are covered if a bank has to liquidate assets. Banks have to maintain 9 per cent CRAR at all times. 
What this means is that for every Rs100 that a bank lends out of the deposits it receives, it has to keep Rs9 aside from its paid-up capital as a buffer against the risk of default.
With a negative CRAR, United Western just does not have the capital to buffer its lending activities.
Anand Sinha, RBI executive director, said the regulator will consider proposals for amalgamation and merger of UWB, which has 230 branches, with any other bank. These could even be foreign banks, he said.
Some months back, a group of investors from the Gulf along with a prominent investment banker had submitted a takeover proposal to the RBI, but it was rejected.
In March 2006, the bank’s rights issue could collect only Rs43 crore. “The bank has proposed a second rights issue,” Sinha said. “But given the deteriorating financial position, it was doubtful whether the issue would be successful.” Even if successful, the proposed rights issue was unlikely to help the bank meet the prescribed capital adequacy ratio, he said.
The bank lost Rs98.64 crore in 2004-05 and Rs106.48 crore in 2005-06. “Its net non-performing assets (or bad loans) were 5.66 per cent as on March 31, 2006, compared with the peer group figure of 1.97 per cent,” the RBI said.
Have a deposit in UWB? Then read this:
There is no need to panic. The RBI has taken the decision in your interest as the bank’s fundamentals had become very weak.
Depositors can withdraw a maximum Rs10,000 from their account in the next three months
There are 39 branches of UWB across India that are open on Sundays. The RBI will ensure that enough cash is made available for depositors
In case of medical/other emergencies, depositors can withdraw up to Rs1 lakh by applying through their branch to the RBI
Deposits up to Rs1 lakh are insured by the Deposit Insurance Guarantee Corporation for each account holder
United Western Bank's url : http://www.uwbankindia.com/