Archana Bhargava, became the chairperson of UBI despite a patchy record but why did she suddenly leave UBI? Was she keen to report exaggerated bad loans and sanction dubious ones that alerted the RBI to act?

The sudden exit of Archana Bhargava, Chairman & Managing Director of United Bank of India (UBI) with her voluntary retirement application being accepted in 24 hours, has set the banking industry buzzing. One view was that she had been made a scapegoat for daring to bring out the rot in the UBI. That UBI had seen such a precipitous decline was significant, because this is the bank, which, along with United Commercial Bank had its net worth completely eroded in the 1990s before being revived with big capital infusion from the exchequer at the taxpayers’ cost.

Another view is that Ms Bhargava’s powerful political connections, which got her the top job at UBI, despite a patchy track record, also ensured that the got a swift exit, when Reserve Bank governor, Raghuram Rajan asked for her to be sacked and the board superseded. Moneylife examines some of the charges and counter charges.

While UBI’s bad loans trebled to Rs8,546 crore at the end of December 2013 from Rs2,964 crore last March, things really came to a head when Mrs Bhargava wrote to the RBI to say that neither the external auditor of the bank nor the RBI inspection has brought out the real mess in the bank and the non-performing assets that were not detected.  This letter prompted RBI to appoint Deloitte as the forensic auditor, while RBI itself initiated a fresh credit audit, which also covered the loans sanctioned by her. The latter probably happened because, as The Economic Times has reported, that 10 UBI general managers wrote to the RBI that she had chosen to override the board and sanction Rs100 crore loan to a realty developer.

In fact, the RBI curtailed her loan sanctioning powers to under Rs10 crore to a single entity while the audits were on. But that was not all. Ms Bhargava, blamed the Infosys software Finacle for failing to detect NPA below Rs10 lakhs. However, it turns out that this did not mean that NPAs remained undetected, but were monitored using regular credit monitoring systems that pre-date core banking. In fact, UBI sources insist that the bank’s NPAs below Rs10 lakh loan portfolio were exaggerated by the former chairperson for reasons  known to her. In several other areas, the bank has made provisions that are even higher than those of State Bank of India.  It is believed that a sober look at the bad loan books will allow the bank to write back some of these provisions in the coming months.
 

Why did Dr Raghuram Rajan seek the removal of Mrs Bhargava along with superseding the UBI board? A universal view is that poor people management and friction with the board of directors as well as top executives of the bank. 

Sources say that Mrs Bhargava has been at loggerheads with the board and several government appointees from the very beginning. What is however curious is her  “rush” to declare massive NPAs in order to “show the bank in bad light”.  The other version, that she was trying to prevent government nominees on the board from lobbying for politically motivated loans or brokering deals for big business seem much less plausible, now that the finance ministry has given her a smooth exit from the bank. Also, Mrs Bhargava herself is supposed to be extremely well connected with the leaders of the Congress party.

The question is, if Mrs Bhargava has such poor people skills, how did she bag a coveted bank chairmanship? Was it based on an impeccable service record? On the contrary, bankers confirm that she has had run-ins with corporate houses and faced charges of strange deals in all her previous assignments. However, most of these charges, including a serious allegation by a company called Rajesh Exports, have not been substantiated following an RBI investigation. Such charges would have affected the careers of many bankers and prevented them from bagging a coveted chairmanship at a nationalised bank. In Ms Bhargava’s case, her contemporaries insist that powerful political support from the ruling Congress government and the ability to have people of influence on her side all through her career, especially at Punjab National Bank.
 

So how bad are UBI’s finances? Was UBI, whose networth was fully eroded in the 1990s, hiding another precipitous slide through dubious and reckless lending? Or, was it, as UBI’s senior bankers allege (on condition of anonymity), CMD Bhargava was in a tearing hurry to show the bank in bad shape by declaring ever escalating NPAs ever quarter. This was apparently the biggest source of acrimony on the bank’s board and led to severely strained relationships with senior management at UBI.  Ms Bhargava may have had a point about the work culture at the bank — this is a complaint that one has heard from everybody posted in West Bengal or specifically in Kolkata.

Interestingly, having given Ms Bhargava a quiet exit through voluntary retirement, it is not clear why the finance ministry is delaying the decision to supersede the board of directors and to appoint a new chairperson.  Mr Rajiv Takru, Secretary financial services told the Financial Express that the ministry is waiting for an inquiry report. Since Governor Raghuram Rajan has only written to the government after a forensic audit by Deloitte and another audit, including multiple inquiries into complaints against the former chairman from companies such as Rajesh Export, it is not clear what the government is waiting for.

It is also unclear how the government can permit a VRS when there are serious charges about loans of Rs800 crore being disbursed with a Rs300 crore collateral or that she overruled the board to extend a loan of Rs100 crore to a developer. This only underscores the view that crony capitalism and political string-pulling is the reason for the massive rise in bad loans in the past few years despite a powerful SARFESI Act having been enacted, a decade ago that strongly armed bankers with powers to recover loans.