vandana ma corrected

8/6/2019 Vandana MA Corrected

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UWBL-Background

y Found in 1936 by Waman Ganesh Chirmule.

y Operational since 8th March1937.

y Since 1951, UWBL is declared as a Scheduled Bank as per RBI Act 1934.

y Union Bank of Kolhapur merged with UWBL in 1956, Satara SwadeshiCommercial Bank Limited followed merger in 1961.

y Upgraded as Class A bank in 1974. (CAMELS ratings)

y UWBL operated only in INDIA.


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CAMELS Ratingy CAMELS ratings on scale of 1-5. A corresponding to 1 being the best

rating.

C Capital Adequacy

A Asset Quality

M Management

E Earnings

L Liquidity

S Sensitivity to Mar et is


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y O er the decades, UWBL became one of the most preferred pri ate sectorcommercial banks in western India.

y UWBL offered di ersified products like automobiles finance, housing finance,corporate finance, export finance, finance for education, finance to SMEs, etc.

y Crossed 100 Crores Net worth in 1996.

y In 1997 opened first ATM in Satara, By 2006, the bank had 230 branches, 12extension counters and 75 ATMs spread o er nine Indian states that werecontrolled by fi e zonal offices at Mumbai, Pune, Kolhapur, Jalgaon and

Nagpur.

KeyAchievements


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The Problems Fall of Bank

These are the main reasons for its collapse:

Irregular transactions -Makharia Group Companies (MGC)

Ownership issue between banks main shareholders i.e. SICOM & MGC

Increase in Non Performing Assets(NPA) and fall in Capital Adequacy Ratio(CAR)

Poor go ernance and inefficient management of capital


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T

heM

akharia Group

y The Company under the aegis of Maliram Makharia Group was

incorporated in 1982 as Maliram Makharia Textile Mills P t. Ltd.

y Subsequently, the name was changed to Emtex Industries (India) Ltd. to

reflect the related expansion and di ersification acti ities under one single

corporate roof.


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Transactions with theMakharia

groupy The Makharia family owned Emtex Industries was gi en o erdraft facility

of Rs. 68.8 million to subscribe to the 1995rights issue of the UWBL bank.

y Also, a letter of credit(LC) was sanctioned to MGC by UWBL

y RBI feltthatthe LC facilitywas providedwiththeintentionofpreventingMGCsloanaccountwith UWBL from becomingnon-

performingassets (NPAs)

y On May 30, 1998, UWBL was penalized for Rs. 1 million by the RBI for

irregular transactions with the MGC.


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Transactions with theMakharia

group Contdy In the year 2000, UWBL filed a petition in the Mumbai High Court against

Emtex for defaulting on loan repayment. As of late 2006, Emtex owed Rs.

499.1 million to UWBL and this was classified as doubtful assets by thebank.

y In another transaction in the year 2003, UWBL entered into a settlement

with Maliram Makharia Stockbrokers Pri ate Limited (MMSPL), a

brokerage house under MGC to pay back Rs. 57.5 million, on account of aloan that was earlier gi en to MMSPL. Howe er, as of August 02, 2006,

UWBL had not recei ed any loan installment from the firm.


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The Ownership Issue

y In Aug 2000, infighting broke out for a controlling stake in UWBL between

the banks main shareholders i.e State Industrialand Investment

Corporationof Maharashtra Limited (SICOM) and the Makharia family.

y SICOM & MGC they held a 24% equity stake in UWBL out of which MGC

held a 14.5%stake.

y Each of the shareholders wanted four representati es on UWBLs board.

y On the other hand, nine professional directors of the UWBL board strongly

opposed the idea.


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The Ownership Issue

Contd

y The management board of UWBL sought RBIs inter ention to seize the oting

rights of the MGC as they did not ha e the regulators' appro al for holding a more

than 5% equity stake in UWBL.

y To a oid Makharias takeo er, UWBL management team decided to grant Rs.200

million interest free loan to employees, to buy shares from secondary market.

y RBI appro ed only Rs.60 million for the purpose, yet UWBL team went ahead to

issue Rs. 200 million.

y RBI imposed Rs 5 lakhs penalty on UWBL for the loan issue and ordered to recall

the issued loan amount.


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The Other Problemsy Inefficient Management of Capital.

y Rising Non Performing Assets (NPAs) and Poor Go ernance .

y UWBL-Asset-Liability Mismatch Details - RBI noted

deficiencies in the asset-liability management of UWBL. This

huge asset-liability mismatch ad ersely affected the liquidity

position of the bank.


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UWBL-A

sset-LiabilityM

ismatchDetails(2005-06) Contd

(Rs. in crore)


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Financial of UWBL (FY 2001-FY 2006)Financial Year 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

(Rs. in crore)

Capital 29.89 29.89 29.89 29.89 29.89 35.87

Reser es 203.58 223.92 249.07 274.08 214.07 50.85

Deposits 5,221.22 4,491.03 5,391.08 6,430.19 6,452.88 NA

Ad ances 2740.06 2657.68 3145.45 3744.47 3976.28 NA

Assets 5738.80 5134.46 5991.90 7139.34 7055.77 NA

Gross NPA 339.58 389.08 447.71 516.34 450.20 490.97


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Failure of UWBLy In general, one can say it was inefficient management of

the bank. In the last two years, huge losses were made,

leading to erosion of the net worth and negati e capitaladequacy ratio.

-Anand Sinha,Executi e Director, RBI.

yI dont accept that the bank has failed. We ha econsolidated.We did not ha e the capital but if we were

gi en more time we would ha e raised it.

-Satish Marathe, CEO, United Western Bank.


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Steps Taken by RBI

y On May 30, 1998 RBI penalized Rs.1 Million to UWBL for

irregular transactions with the MGC.

y RBI Seized oting rights of MGC.

y RBI imposed a penalty of Rs.5,00,000/- on UWBL in 2000.

y From June 2001, UWBL was plead under monthly monitoring by

the RBI.


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StepsT

akenC

ontdy RBI issued 13 directions to UWBL

y

RBI ad ised the bank to increase its Equity Capital tomeet the prescribed capital adequacy norms.

y To RBI issued an application suggesting Moratorium toGo ernment of India (GOI).

y On September 13,2006 RBI announced that UWBL wouldMerge with IDBI( The Industrial and De elopment Bank ofIndia)


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AMALGAMATION OFTHE UWBL WITH IDBI

y The business, properties, assets and liabilities of UWBL shall

stand transferred to IDBI Bank Ltd.

y

All contracts, deeds, bonds, agreements, powers of attorney etc.ha ing effect immediately before the date of amalgamation,

shall be effecti e and may be acted upon as if IDBI Bank Ltd.

had been a party thereto or as if it had been issued in fa our of

UWBL.

y any suit, appeal or legal proceedings pending shall not abate,be discontinued or be prejudicially affected but shall be subject

to the other pro isions of the Scheme, be prosecuted and

enforced by or against the transferee bank;


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y the books of UWBL shall be closed and balanced and

balance sheet prepared at the close of business on the date

immediate preceding imposition of moratorium and thebalance sheet shall be got audited and certified

y IDBI Bank Ltd. shall, in consultation with UWBL, alue

the assets and reckon the liabilities of UWBL in the

manner prescribed in the Scheme. IDBI Bank Ltd. shalldischarge the liabilities of UWBL and make payment to

the creditors and depositors in the manner specified in the

Scheme.


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y IDBI Bank Ltd. shall make an upfront payment in cash of

Rs. 28/- in respect of e ery fully paid-up share in UWBL,

to the Members of the UWBL, who were, as on theprescribed date, registered as the holders of shares of the

transferor bank.

y All the employees of UWBL shall continue in ser ice and

be deemed to ha e been appointed in IDBI Bank Ltd. atthe same remuneration and on the same terms and

conditions of ser ice as were applicable to them before the

amalgamation


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Thank You!!!

vandana ma corrected

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