Hope to close at average 3% margins this year: UCO Bank

Excerpts from Reporter's Diary on CNBC-TV18 Watch the full show » ALSO READ See latest News about UCO Bank See previous management interviews See what other Experts & Brokerages are saying about UCO Bank UCO Bank BSE | NSE 30/05/12 Are Mutual Funds betting on UCO Bank?

UCO Bank reported a strong set of second quarter numbers for FY12. The bank reported a net profit of Rs 231 crore, a growth of 94% as compared to Rs 119 crore in the corresponding quarter of last fiscal.

Arun Kaul, Chairman of UCO Bank breaks down their second quarter results for CNBC-TV18's viewers. He also discusses the bank's strategy going forward.

Below is an edited transcript of his interview. Watch the accompanying video for more.

Q: There is a lower provisioning for the quarter. Why you have done that?

A: We started the cleaning up exercise last year itself. For the year ending March 31, there are slippages of almost about Rs 2,650 crore. Gradually the slippages are coming down. Today, we have 100% system driven NPA's. As per government guidelines, we have made system driven NPA's above Rs 1 crore as on March 31, above Rs 50 lakh on June 30 and 100% as on September 30.

If you look at the sequential growth in terms of the NPA's, in this quarter the increase of the gross NPA is hardly about Rs 180 crore. We have been able to contain our slippages substantially. Now that it is 100% system driven, we don't expect large surprises in the bank's balance sheet in the future except for the normal slippages whatever may take place. So, we don't see any large surprises.

Q: You have seen a massive surge in your net profit. What would you attribute this surge to?

A: If you look at the operating profit compared to the previous quarter, there is an almost Rs 100 crore increase to the operating profit because there was a huge increase in the NPAs, so the return on those NPAs was very poor. We started recovering and things started improving. My recovery this year is very good. In the first half of the current financial year, my recovery is almost as the last full year.

We have been able to substantially reduce our bulk deposits although the cost has moved up but we have got the benefit of paying of the bulk deposits. Going forward, my cost of funds will not rise in the same proportion. Our yield advances have also improved substantially. If you look at the operating profit for this quarter compared to the immediate preceding previous two quarters, there is substantial improvement in our operating profits.

Q: What is muted, however, is the NII's which went up by only about 1%. What is the reason for the muted growth in NII's?

A: NII growth is low because we have been relatively slow on business growth. Business growth has been relatively less because we have been focusing more on consolidation and recovery. I am sure from now onwards the business growth will be fairly comfortable. You will see good growth in NII and operating profit going forward.

Q: Give us guidance on your margins for the remaining two quarters?

A: If I again look at the previous three quarters, for the quarter ending March 2011, my NIMs was only 2.35 which improved to 2.46 as on June 30. It has further improved to 2.84 as on September 30. So, in the last three quarters there are continuous improvements in the NIMs. If you look at the domestic NIM, it has just crossed 3%. I am hopeful that for the full year we should be able to maintain our NIM at 3%.

To improve our NIM there are two reasons - We have been paying of our bulk deposits so my dependence on bulk deposits have continuously been coming down. The second is because the NPA's are very large, we started recovering and the recovery efforts are paying off. So my interest bearing assets are also going up.

Q: What is the credit growth outlook really looking like for the bank?

A: I would like to go with our RBI expectation of 18% credit growth for the full year.

Q: Are you saying that's the kind of growth you are expecting even at UCO Bank?

A: Yes.

Q: Are you looking to hike your savings rates?

A: We are examining it in detail. Savings account is a transaction account with large transaction costs. We will have to strike a careful balance between the interest we pay on the deposit as well as the cost incurred thereof. We are examining various feasibilities and we will take a view after sometime.

Q: It seems as if every bank is actually waiting for another bank to take the lead. Are you also waiting for someone to actually hike saving rates?

A: We have to look at a lot of other sectors. We had - the UCO Freedom campaign which stopped today where a lot of freebies are given. We will have to examine it in terms of the cost implications and also the software changes which have to take place.

Q: Are you planning to pass the 25 bps hike which the RBI took up onto the consumer? By when can we perhaps see some loans getting more expensive from UCO Bank?

A: Our asset liability committee will have to look into this and take a view on this. If my cost of funds moves up, I may have no option but to increase my lending rate also. It all depends on the cost of funds.

Q: By when will you be able to tell us that?

A: My asset liability committee will shortly take a view on this.