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UCO Bank shares tank after finance ministry orders forensic audit

Thursday, 28 August 2014 - 5:40am IST | Place: Kolkata | Agency: dna

UCO Bank shares tanked 8% on Wednesday on Bombay Stock Exchange (BSE) to close just above Rs 90 after the finance ministry questioned the bank over four corporate accounts. The state-run lender however claimed that all these loans are standard assets, adding that the forensic audit is only a precautionary measure being undertaken by the ministry following cases of malpractices in some public sector banks.

The ministry's move apparently stemmed from a slew of complaints that some of these accounts had turned non-performing.

The development spooked the markets as UCO Bank becomes the latest, and fifth, to join the growing list of public sector banks - after United Bank, Syndicate Bank, Dena Bank and Oriental Bank of Commerce - where the finance ministry has undertaken forensic audits.

The reason behind the crackdown by the finance ministry are varied -- starting from efforts to stem malpractices ranging from hiding NPAs to accepting bribe to enhance credit limits to a defaulting account to misappropriating funds from fixed deposit customers.

"We would like to clarify that forensic audit is being undertaken in the bank in respect of four old accounts which are all standard accounts in bank’s books. However, the material impact, if any, will be known after completion of forensic audit," the bank said in a statement after market hours.

So, does UCO bank has any unacceptable banking practice to hide that, in a near future date, can turn into a nasty surprise, for its investors?

Unlikely, claimed several officials of the bank whom dna spoke to.

"The combined size of the accounts taken together would be around Rs 1,000 crore, and they are all performing," a senior bank official told dna. 

"The forensic audit is a precautionary measure being undertaken by the finance ministry following cases of malpractices in some public sector banks. Also, there is no

abnormality in UCO's non performing asset level and it is only symptomatic of the state of the economy where large accounts like Bhushan Steel and Kingfisher Airlines have turned bad," director Partha Chanda told dna.

The gross non-performing assets at the June quarter end stood at Rs 6,346.32 crore, which in percentage terms was 4.31% of its total advances while net NPA was Rs 3,344.02 crore.

The gross NPA level declined by 4.15% from March level of Rs. 6621 crore and by 11.59% from year-ago level of Rs.7178 crore.

In fact, UCO claimed before analysts post June quarter earnings that it is only public sector bank showing reduction in gross NPA dropping 7% over FY'13.

Even considering restructured assets along with gross NPA, the rise was 12% comparing favourably with United Bank where the combined figure grew a whooping 79%. 

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