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.
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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. |
The Fall of United Western Bank
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