Sharp increase in NPAs has dented performance of United Bank of India stock

United Bank of India, which listed in March 2010, is making headlines for all wrong reasons. The stock closed at an all-time low of Rs 23.40 on 21 February 2014, 63% below its 52-week high of 62.95 on April 18, 2013 and 85% below its all-time high of Rs 152.20 on Nov 1, 2010.

WHAT WENT WRONG?

The bank has seen unprecedented growth in non-performing assets in the past two quarters. "The NPAs have gone above the acceptable limits" Sanjeev Jain, BFSI analyst at Microsec, a Calcutta based research firm. The gross NPAs of the bank jumped from 7.52% in the September quarter to 10.82% in the December 2013 quarter. In June 2013 it was at 5.59%. At the current level, the gross NPA ratio of the bank is the highest among public sector. banks. Gross NPAs stands at Rs 8,545 crore in December 2013 end, up from Rs 6,286 crore in quarter ending September 2013.

There has been a sudden rise in slippages (restructured loans which have again started to default). They have gone up almost five times in the past one year, from Rs 680.72 crore in December 2012 to Rs 3172.14 crore in December 2014.

The net loss of the bank rose to Rs 1,238 crore in the quarter ending December 2013 from Rs 489 crore in the previous quarter due. The capital adequacy ratio (CAR) has gone below the acceptable norms. The Tier-1 CAR has come down to 5.6%, which is below RBI's minimum requirement of 6.5%. Its total CAR at 9.01% is at the minimum regulatory requirement of 9%.

SAVING GRACE

Jain believes that the bank is a good bet long-term due to attractive valuations. "From the long-term perspective I am positive on UBI, because the government and RBI are trying to rehabilitate the bank. Also, the valuation looks good. It is trading at a price to book value ratio (PB) of 0.43 X, which is lower than majority of its peers. The high CASA ratio of bank (35.58%) compared to its peers is also a big positive," says Jain of Microsec.