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Moratorium on United Western
Rapid capital erosion leads to RBI action

Mumbai, Sept. 2: The Reserve Bank of India (RBI) today imposed a moratorium on United Western Bank (UWB), an old generation private sector bank that generates business worth over Rs 10,000 crore.

The decision added another dark chapter to the banking system in Maharashtra. UWB has its headquarters in Satara and the moratorium would mean that depositors of the bank can only withdraw up to Rs 10,000 from their savings bank accounts.

Spelling out the reasons why this step was taken, the central bank cited the rapid capital erosion occurring at the bank, which has endangered the interest of depositors. As on March 31, the bank's deposits were at Rs 6,480.19 crore and advances amounted to Rs 4,006.27 crore.

The United Western Bank came out with a rights issue in February this year offering one equity for every two shares held at a price of Rs 24.

The bank had again filed an offer letter with the market regulator Sebi for issuing 4,30,35,708 equity shares on rights basis in the ratio of 4:5 on August 21. The bank has already appointed SBI Capital Markets for the proposed rights offer.

The bank urgently needed capital as its capital adequacy ratio steeply declined to 0.99 per cent as on March 31, 2006 from 4.86 per cent a year ago and it turned negative (-0.3 per cent) on June 30. Under the RBI stipulation, commercial banks are required to maintain a CAR of 9 per cent on a mandatory basis.

Even after making provisions for investment losses and other contingencies, the bank posted a net loss of Rs 106.48 crore in 2005-06 and Rs 6.08 crore during the April-June quarter of the current financial year. These losses eroded the tier I capital of the bank thereby reducing the CAR.

Its net non-performing assets were 5.66 per cent as on March 31 compared with the peer group figure of 1.97 per cent. The bank's assessed capital to risk weighted asset ratio (CRAR) turned negative at minus 0.3 per cent as on June 30, 2006.

“This has jeopardised depositors' interest. The bank was also unable to come up with any credible plan to raise fresh capital to bring its CRAR to the prescribed level,” the central bank added.

While the order of moratorium has been passed by the Union government in public interest after an application by the RBI, “in the interest of depositors and the banking system”, the RBI said it would be effective from today up to and inclusive of December 1, 2006 or an earlier date.

However, the moratorium will be lifted if alternative arrangements are put in place.

During this period, the RBI will consider various options, including amalgamation of UWB with any other bank and finalise the plans in “public interest and with a view to ensuring that public deposits are protected”, it added.

The bank will be permitted to make only those payments that have been specified in the order of moratorium and the depositors of the bank will be permitted to withdraw up to Rs 10,000 from their savings bank account or current account or any other deposit account through any of the branches of the bank.

Customers of the bank will not be able to withdraw money through the ATMs of the bank/ATMs shared with other banks so as to give effect to the monetary ceiling prescribed in the moratorium.

Speaking to newspersons after the moratorium was imposed, Anand Sinha, executive director of UWB, said depositors of the bank could withdraw amounts exceeding Rs 10,000 only under certain special circumstances. Amounts in excess of Rs 10,000 can be withdrawn for events such as marriage of children, for medical treatment of the depositor or his family members and for education apart from any other unavoidable emergency.

Sinha revealed that UWB has been monitored by the central bank since January 2001. Last year, it was told to cut high cost deposits and not open any new branches.

UWB was also told to raise the paid-up capital to Rs 300 crore. He added that for the period ended June 30, the bank had net NPAs of Rs 201 crore. Established in 1936, UWB has a network of 230 branches, 12 extension counters and 75 ATMs and its operations are mainly concentrated in Maharashtra. It is listed on the Bombay Stock Exchange.

On July 31, UWB chairman and managing director, Satish K. Marathe, who is also one of the promoters of the bank, had resigned from the bank. He didn't hold any equity share in the bank when he quit.

UWB's shareholding pattern is also quite interesting. At the end of the April-June quarter of the current financial year, promoters'shareholding in the bank is only 0.2 per cent and the total public holding is 99.98 per cent. Again among the public holding, institutional holding (the accounts for only 16.24 per cent, the rest are with retail and individual investors. Among the prominent institutional shareholder of UWB are Sicom Ltd (9.92 per cent), LIC (1.50 per cent) and Sangli Bank (1.27 per cent). A foreign institutional investor, Matterhorn Ventures holds 1.84 per cent stake in UWB. The bank's shares were quoted at Rs 22.70 a share on the Bombay Stock Exchange.

Many banks based in Maharashtra have been coming under RBI moratorium from time to time. These include South Indian Cooperative Bank, Ganesh Bank of Kurundwad. Last month, the central bank imposed a moratorium on Samata Sahakari Bank, restricting withdrawals at Rs 1,000 after a panic run among depositors. Way back in 2004, Nagpur Mahila Sahakari Bank met with a similar fate. The most memorable of such moratoriums was that of Global Trust Bank (based in Hyderabad), which was since merged with Oriental Bank of Commerce. In both Global Trust Bank and Ganesh Bank, suitors came in a span of three days after the moratorium was imposed.Ends

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