The Fall of United Western Bank

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Case Details:

Case Code : FINC040
Case Length : 15 Pages
Period : 1996-2006
Organization : United Western Bank.
Pub Date : 2006
Teaching Note :Not Available
Countries : India
Industry : Banking

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"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 negative capital adequacy ratio. Its net worth fell below the prescribed limit of Rs 300 crore (Rs. 3 billion). The depositors' interest was in jeopardy."1

- Anand Sinha, Executive Director, Reserve Bank of India, in September 2006.

"I don't accept that the bank has failed. We have consolidated... We did not have the capital but if we were given more time we would have raised it."2

- Satish Marathe, CEO, United Western Bank, in 2006.

The Moratorium

On September 02, 2006, the Government of India (GoI) imposed a moratorium on the Satara3 based United Western Bank Limited (UWBL), one of the largest private sector commercial banks in India. The moratorium order was passed in response to an application by the Reserve Bank of India (RBI)4 citing the poor financials of UWBL due to its inefficient management. The moratorium was for three months from 14.00 hours on September 02, 2006 till December 01, 2006 or an earlier date, in case of any alternative arrangement. During the period of the moratorium, the bank was permitted to make some specific payments as mentioned in the order and depositors were allowed to withdraw only up to Rs.10,000 in total from their savings/current account or any other deposit account through any of the branches of the bank.

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The withdrawal of money through the ATMs of the bank was prohibited. However, RBI relaxed the withdrawal limit in a few specific cases.

Commenting on this, Anand Sinha (Sinha), Executive Director, RBI, said, "Withdrawals in excess of Rs. 10,000 will be allowed by the RBI in connection with medical expenses, higher education, to pay obligatory expenses in connection with marriages and other unavoidable emergencies."5 According to RBI, the moratorium was imposed in order to protect the interests of the depositors of UWBL. The bank, set up in the late 1930s, had been operating for nearly 69 years. Over the years, it became one of the major private sector commercial banks in western India. The core business of the bank comprised of lending to the agriculture sector, small and medium enterprises (SME), the sugar industry and various government sponsored programs.

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1]  "United Western Bank Placed under Moratorium,", September 03, 2006.

2] Tamal Bandyopadhayay, "Death of a Bank: The Complete Saga,", September 16, 2006.

3] Satara is a district in Western Maharashtra.

4] Established in 1935, RBI is the central bank that regulates and supervises the financial system in India. It is the banker to the Government and all scheduled banks in the country. Its important functions are to prescribe broad parameters of banking operations within which India's banking and financial system functions, to maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public; formulate, implement and monitor the monetary policy, maintaining price stability and ensuring adequate flow of credit to productive sectors; and foreign exchange control.

5] "United Western Bank Placed under Moratorium,", September 03, 2006.


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