Government-owned UCO Bank is expecting a significant fall in its gross non-performing assets (NPA) during Jan-Mar as it sees much lower slippages during the quarter.
"We had about Rs 1,500 crore slippage in September which came down to Rs 1,200 crore in December. We are hopeful in the current quarter there will be much lower slippages than this," Arun Kaul, Chairman, UCO Bank told CNBC-TV18 in an interview.
Buyoed by growth in its current account saving account (CASA), the bank hopes to cross the net interest margin 2.5 percent in Jan-Mar. UCO Bank's CASA has improved to 32 percent currently from 24 percent in December 2011. Kaul said aggressive customer acquisition has helped the company to improve CASA.
The public sector bank is also set to receive a capital of Rs 681 crore from the government through allotment of preferential shares of 8.80 crore at a market price of Rs 77.46 per share. The shareholders approved the capital infusion in the bank's extraordinary general meeting held in Kolkata bank on Wednesday.
Below is the verbatim transcript of the interview.
Q: What does the capital adequacy now work out to after the money comes in?
A: Capital adequacy before issue of the shares as on December 31 was 13.19 percent with tier-1 at 8.03 percent.After induction of Rs 681 crore, my capital adequacy would be 13.88 percent with tier-1 at 8.72 percent.
Q: What will be the government’s stake?
A: Government’s stake before issue was 65.19 percent, after induction it is 69.26 percent.
Q: Would you require anymore fund infusion from the government in the following year in FY14?
A: Current year is quite sufficient for us. For the next year, we are working out how much additional funds we will need for the growth. For current year, we should be able to manage with the present capital received from the government.
Q: When do the Basel III norms kick in? Won’t they takeaway a little bit of the capital?
A: We have worked out, up to next five years we would require something like Rs 15,000 crore. We are working on that.
Q: Coming back to the asset quality, in Q4 are we likely to see higher restructured assets in order? Banks will have to provide more by way of restructuring in the coming next year according to the new guidelines. Would we see a pre-empting of that in Q4 to see higher restructured assets?
A: Restructured assets as on December 31 were Rs 8,300 crore. It might marginally go up, because most of the major restructuring has been done. Quality of asset has been our concern and if you have noticed last two quarters had fairly large slippages. We had about Rs 1,500 crore slippage in September, which came down to Rs 1,200 crore in December. We are hopeful in the current quarter there will be much lower slippages than this. Our recovery efforts have also started paying off very well and we are hopeful that current quarter recovery upgradation should be matching our slippage. So the gross NPA should start coming down from the current quarter onwards. So the efforts we started earlier, are yielding good results now.
Q: So your expectation is that you will be flat on gross NPA in Q4?
A: Yes, it looks like that.
Q: How much did you recover and upgrade in the quarter just gone by? Was it much lower than the slippages?
A: We expect this to be about Rs 400 odd crore. In third quarter my slippage was Rs 1,200 crore.
Q: You are expecting that in the current quarter both of them will be equal, fresh slippages and upgrades?
A: Correct, that is what we expect.
Q: Margins were spectacular, in the last quarter you went up from 2.24 to 2.89. We understand this was largely due to huge jump in deposits, especially current accounts. Is that true in the first place and if that is the case what was the reason that you could see such an unusual jump in current accounts?
A: We have been able to increase our Current Account Savings Account (CASA) from 24 percent on December 2011 to about 31 percent on December 2012 and as on date it is close to 32-33 percent. The substantial jump in the CASA has come from two factors. Number one, we have been very aggressively acquiring new customers. We are acquiring at the rate of almost 2-2.5 lakh customers every month. That has given a good push to my savings account growth. In addition, we have also kept a lot of float funds in our current account, particularly for Indo-Iran trade. So that has helped to push up my CASA substantially. As on date my CASA is approximately 32 percent. You see the huge jump from 24 percent to 32 percent and that has led to my cost of funds coming down and Net Interest Margin (NIM) improvements.
Q: Can the NIM go above 3 percent mark?
A: I think in the fourth quarter we should be crossing 2.5 percent. It may not cross 3 percent this year, but let us see.
Q: Is it only Indo-Iran trade money or is it generally oil PSU companies? How come they suddenly got attracted to you in the past couple of quarters? It is a new feature, isn't it?
A: For the Indo-Iran rupee payment mechanism, we are the sole banker. All the transactions are routed through us. That has helped me to capture large number of current accounts and a good float in the current accounts.
Q: So this will persist for a few quarters now? How does this process pan out for the current quarter and the next year?
A: We expect it to continue the way it is right now.
Q: What about loan growth? What are you likely to finish the year with?
A: In the third quarter the loan growth was 14.67 percent. We are hopeful of achieving about 15-16 percent loan growth. My deposit growth is also in the same region of around 15-16 percent. In the third quarter our operating profit was very high. In the history of the bank it was highest operating profit. We are very hopeful of further improving the operating profits. Net profit was lower due to high slippages and the large provisions we have to make, which should now improve going forward.
Q: Provisions were big. They were up to Rs 728 crore in Q3. What might they be in Q4, assuming that your calculation on slippages and upgrades are valid? How much might they increase because of the restructured assets? How much will they go up in the first quarter of next year?
A: Restructured may not be very large but we would like to improve the asset coverage, provision coverage. So we may like to provide for asset coverage. I can’t give the figure right now, but certainly our asset coverage will go up.
Q: So what is the desire of provision coverage? At the moment it is about 49 percent, right? What are you targeting for the end of the current quarter, March 31 and what is your eventual goal in terms of provision coverage?
A: That would depend on whatever operating profits we have, but we would certainly like the provision to go up substantially from the present levels.
Q: You also have significant exposure to metals, mining and infrastructure. Are you seeing any increased stress in any of these sectors?
A: Many of these which have already become NPAs and we are discussing with them. Some of that might get upgraded. Others where the restructuring is required, we have already done the restructuring. There are few more cases coming to the restructuring. Otherwise, we have already dealt with most of them.
Q: Ever since the credit policy, we have actually seen rates on Commercial Papers (CP) and Certificate of Deposits (CD) rise. Couple of banks has even raised their deposit rates including the mighty State Bank of India (SBI) and Punjab National Bank (PNB). Why is it that we are seeing this tightness? How do you see the market yields going from hereon up until March 31 or even April?
A: If you look throughout the year, liquidity has been very, very tight. Banks have been raising money from Reserve Bank of India (RBI), almost around Rs 1 lakh crore or so under Liquidity Adjustment Facility (LAF) system. It has come down now. The tight liquidity was aided by a lower credit growth, but now the credit growth has started picking up. Demand for money has started coming up. So banks are fixing the liquidity crisis. Also, we have noticed up to last year banks used to raise substantial money from CDs. But since central government has put a limit on the public sector banks for CD at 5 percent, we see the CD yields have started coming down as many banks have already taken off 5 percent. So, today the one year CD has come to around 9.10-9.20. Banks are offering slightly higher for the FD portion for the funds requirement. Traditionally we have seen rates rising up in March. The depositors are willing to put money for one year wanting higher rates and the banks are trying to get deposits to meet the deposit targets. So traditionally March has seen slightly higher rate that is the reason that some of the banks have increased the rate to meet the fund requirements. Although credit growth is relatively low compared to last year, but so is the deposit growth as the money supply is slightly on the lower side. So all that has led to a situation that some banks are forced to increase rates in some segments right now.
Q: There has been a very clear indication from the government over the past several months that they are not interested in the balance sheet growth at all. Those balance sheet targets have been removed altogether and you have been asked to concentrate on margins and profits. How will that pan out in terms of a March end effect. Are we therefore not going to see this extraordinary growth in deposits that we used to see and which was a common feature for several years now?
A: That is the reason we see the rates not as high as last year. If you remember last year, one year CD has even crossed 11 percent in the month of March. Right now, after having touched 9.38-9.40 it has started coming down. CD has come down to as low as 9.10-9.12. So, we did not see the kind of pressure we had seen earlier year in March. Coming to government securities, we have seen continuously rate coming down, yields coming down, right now they are 7.85 percent. Market widely expects some sort of rate cut to take place. So we do notice yields coming down.