Calcutta, June 10: The Reserve Bank of India has partially relaxed the lending cap imposed on the United Bank of India.
In a letter dated June 3, the RBI has allowed the bank to consider credit proposals of up to Rs 200 crore for those corporate houses, including public sector undertakings, which are rated AAA by credit rating agencies.
Corporate houses approach rating agencies to evaluate their credit worthiness before taking loans from banks and financial institutions. The AAA rating is considered to be low-risk with low chance of default.
Following a sharp rise in UBI’s non performing assets during the September quarter of the last financial year, the RBI had imposed a restriction on lending beyond Rs 10 crore by the bank.
While relaxing the lending curb, the RBI has set two conditions that the UBI will have to meet. First, the bank will have to ensure that the credit-deposit ratio does not go beyond 70 per cent; and second, the capital adequacy ratio should not fall below 9 per cent at the end of the first quarter ended June.
UBI executive director Sanjay Arya said the regulator’s decision would offer breathing space to the bank and would help its business to grow by allowing more credit avenues.
“We have been actively working on a robust recovery in non-performing assets, which ultimately resulted in the bank registering a profit in the fourth quarter last fiscal against a net loss in the previous quarter. Now we would be able to increase our lending to the corporate sector,” Arya told The Telegraph.
Following the lending restriction, UBI’s total advances declined 5.6 per cent in the quarter ended December and 14 per cent in the quarter ended March 2014.
The overall decline in total advances for 2013-14 was 2.48 per cent over the previous year, with advances to middle and large corporate houses falling 8 per cent.
“We are still cautious about corporate lending. But, as the economy recovers, there will be scope of increased advances to the corporate and infrastructure sector,” Arya said. However, the restriction of Rs 10 crore continues on other credit accounts. He said the bank’s credit-deposit ratio stood at around 61 per cent, which was low on account of the decline in credit advances in the last few months.