See global NIMs at 3% by March: UCO Bank

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Public sector lender UCO Bank delivered mixed third quarter numbers. Its profits rose 10% while net interest income (NII) declined 3% year-on-year (Y-o-Y) on an quarter on quarter basis (Q-o-Q) it was flat.

Its non performing assets (NPAs) in the quarter were to the tune of Rs 567 crore, but Arun Kaul, chairman of UCO Bank is hopeful that the bank's recoveries will be more than slippages.

In an interview to CNBC-TV18 Kaul said," In the last six-seven quarters, the trend was of continuous slippage and recovery was lower, but we are arresting the trend."

UCO Bank's loan book grew by 18%, it expects to maintain this trend in the current quarter also. The bank is hopeful of improving its global net interest margins (NIMs) from 2.89% to 3% by March.

Below is the edited transcript of Kaul's interview with CNBC-TV18. Also watch the accompanying video.

Q: Your asset quality has improved sequentially, what is the near term outlook on that front? Do you expect this strength to continue in Q4?

A: We had started cleaning bank's balance sheet last year. We have been declaring fairly large NPAs and we have put in huge efforts on recovery. So, this quarter also the slippage is just about Rs 567 crore. This includes one very large private airlines account worth Rs 291 crore. Had that not been there, our slippage would have been much lower than what is today. However, during the quarter my recovery up gradation write off, reduction in NPAs is to the tune of Rs 384 crore.

But for this one private airline, my reduction in NPA would have been higher than the slippages. So, that means we are arresting the trend. In the last six-seven quarters, the trend was of continuous slippage and recovery was lower. For the nine months period ending December 2012, total slippage is Rs 1,560 crore, whereas reduction by way of recovery up gradation write off is about Rs 1,015 crore. This Rs 291 crore is a very large amount. But going forward, I expect our recoveries up gradation to be more than slippages.

Q: I am kind of guessing that this private airline that you are talking about is Kingfisher Airlines leading to slippage of Rs 291 crore. Will it still be an NPA in the Q4, so we should expect this to continue in the Q4 as well?

A: As on date it is an NPA.

Q: Could you take us through the decline in NIIs?

A: If you look at by business growth on quarter on quarter, deposit has grown by 18.5% and credit has grown by about 18.3% with a good growth in the business. However, the cost of deposits has gone up by about 180 basis points and return advances have gone up only by 145 basis points. These were putting some pressure on net interest margin and net interest income.

Also since December last year, we declared fairly large NPAs and we are trying to recover them. But those NPAs are not earning any interest for me, even though my credit has moved up, book has build up pretty well, my net interest income is more or less flat because of higher cost of deposit and NPAs.

Going forward, we are hopeful that slippages will be lesser than recoveries. So, thereby my gross NPA will not go up, it will start coming down. At the same time we are pretty hopeful that interest rate cycle is likely to turn because RBI has very clearly said that they will not increase the interest rate, with that the cost of fund going forward can come down.

Q: What has been the trend in this quarter as far as the loan book is concerned?

A: Our growth in the loan book has been approximately 18% and we will maintain this trend in the current quarter also.

Q: Can you take us through your NIMs?

A: My global NIMs as on 31st December was 2.86%, which is a substantial improvement on the earlier quarters. Quarter ended March 2011, it has gone down to approximately 2.35%. Since then NIM is showing a continuous improvement, it's come up to 2.89%.

It is lower compared to the last year, last year December was 3.08%, but my domestic NIM is very comfortable. The domestic NIM is 3.08% and the global NIM is 2.89%. Going forward, we are hopeful that we will be able to bring improvement in the NIMs.

Q: Would you like to tell us by how much you would like to bring that improvement in NIMs? How much we can actually see one?

A: We should be able to touch 3% global NIMs by March. Domestic is already above 3%.

Q: What is your credit growth outlook for Q4 and also for FY13?

A: So far as Q3 is concerned, my YoY growth in credit is approximately 18.5%. We are hopeful of maintaining this trend in Q4 also. We should be able to maintain about 18% growth in my credit. Going forward, we will have to wait and see how liquidity phases out in 2013, but we should be inline with the banking system growth.