The growing pile of bad assets at United Bank of India (UBI) should be seen as an advance storm warning rather than localized turbulence. One-tenth of its loan book is in trouble. The public sector lender now has a level of capital adequacy that is at the bare minimum prescribed by global capital adequacy rules. It will need a capital infusion from the government if it is to lend more.
The Kolkata-based bank has never been known for its financial good sense. But its current woes deserve attention. There are two reasons why other Indian banks could be headed for trouble in the coming quarters. First, more loans could turn bad unless there is a rapid recovery in the economy. Two, there could be losses in the bond portfolios of banks in case the Reserve Bank of India decides to push up interest rates further in its long battle against inflation. Read more