Clearing the air over media report suggesting that UCO Bank may write off a substantial part of basmati exporter REI Agro loans, the bank's Chairman Arun Kaul said they have no such plans at this point. The bank’s exposure to REI Agro stands at Rs 800 crore, he said.
UCO Bank is one among the many banks trying to recover their money from REI Agro, which has been accused of misappropriation of funds by lenders.
A Bloomberg report in January said Credit Suisse Group AG had sued REI Agro Ltd. in Singapore claiming thecompany and 16 related companies conspired to get loans for non-existent trades of rice.
In an interview to CNBC-TV18, Kaul said the bank is looking at rate cuts as cost of funds has come down. He said though the credit growth has not been too strong till now, the bank is comfortable with current capital adequacy ratio level.
Below is the transcript of Arun Kaul’s interview with Reema Tendulkar & Sumaira Abidi on CNBC-TV18.
Reema: I was reading your report very recently where the lenders seem to have agreed to file a complaint with the CBI against REI Agro alleging cheating as well as misappropriation of funds. Can you walk us through what the exposure of UCO Bank is to REI Agro’s and how will this development affect the recovery? Is there a chance that bankers might have to write off their exposure to REI?
A: REI Agro has a total exposure to banking system of Rs 5,000 crore or so, slightly more than Rs.5,000 crore. If they were exporting rice, they have rice plants available, there is the land and building, plant and machinery available with the bank. The forensic on it conducted showed that there is some shortage of the assets which probably could have been some diversional files.
Sumaira: What is UCO Banks exposure to REI Agro?
A: It is approximately Rs 850-860 crore.
Reema: Is there a possibility that UCO Bank may have to write off the exposure and since there is a shortage of funds how will the recovery stand at?
A: No, we are looking at the various options available, including the fixed assets which are in the charge of the bank and some current assets are also available.
Sumaira: So this case with the CBI, has it already been filed or is it yet to progress from here?
A: It is in the process.
Reema: So, as of now, no plans to write off.
A: No.
Reema: So, let us come back to the pressing question that we are trying to get an answer from, from most of the banks. After two rate cuts by the RBI, when are we likely to see a pass-through? What is the sense at UCO Bank? When will the base rate-cut happen? And if yes, by how much?
A: Like we said earlier also, we are examining, because once the cost of deposit goes down, it will enable us to pass on the benefit to the customer. We are examining this. We will have shortly the asset-liability committee (ALCO) meeting to look into all these aspects. Yes, last couple of months we are seeing cost of funds coming down because the repo-rate is coming down. Of course, liquidity has slightly constrained the market, but we are in the process of looking at all those things. And, I am sure banks will be able to pass on the benefit to the customers because credit growth has not been very strong.
Sumaira: How much ahs your cost of funds come down by?
A: No if you look at the last quarter, it is marginally come down. We are hopeful that current quarter it will further come down.
Sumaira: Do you have any capital raising plans? How much would you need in FY15 and how you are looking at raising it?
A: We are pretty comfortable so far the capital adequacy is concerned. However, we have an offer from LIC who are willing to subscribe to our issue and we are in the process of doing that. We will have shortly our General Body meeting and we are also seeking government permission for that.
Reema: This is that same, around Rs.400 crore that you were planning to raise via LIC which came out about a month or two months back?
A: Correct.
Reema: So, that will not happen at least in this J anuary to March quarter. Is it likely to spill over into the April-June quarter?
A: We are trying to do it as fast as possible.
Reema: So, perhaps even in this Q4 quarter?
A: Possibly, yes.
Sumaira: Very recently, the Minister of State for Finance, Jayant Sinha had said that the top-10 borrowers of Public Sector Undertakings (PSU) Banks are accounting for non-performing assets (NPAs) in excess of about Rs.28,000 crore. Could you give us a sense of where exactly the banks are seeing stress? I mean, what kind of lenders, what sectors is it and how much of it could taper off as we step in to FY16?
A: No, you see, the reasons for this stress is, because you look at the previous decade, the 2000-2010 decade, large number of projects were set up including large infrastructure projects were set up in which banks extended good support. So many of these projects are suffering today which are leading to either these getting restructured or becoming NPAs. Now, banks are facing a problem, a lot of steel, textile, Sun-pharma, power projects and many infrastructure projects, banks are facing a problem. Whichever bank, like UCO Bank has stopped all those four years back, we virtually slowed down on our corporate credit exposure and moved towards the retail. So, we are not seeing much stress in the new assets, but the old assets, yes, stress is there which gradually is coming down. Going forward the stress would keep on going down because major disclosures have already taken place, whatever has to become NPA has already become NPA. So only the recovery efforts that are going on to either recover or upgrade our assets. So, possibly, banks have seen the worst case where the stress is concerned.
Reema: Since we are talking on the subject of asset quality, come April 1, the special category called restructured assets will not be there for most of the banking space. How should we understand the restructuring of assets will be in this Q4 compared to the previous quarter? In the last quarter, you restructured book was about Rs.9,700 crore. What is it likely to look like at the end of this quarter?
A: There could be some addition, because we are seeing some power projects getting restructured in this quarter, so there will be small addition in the restructure is possible.
Reema: You have seen some addition to your restructured book from the power side, power project. What about the incremental slippages? And last time when we spoke to you it was only during the earnings season, at that time, so the gross NPA was about 6 and a half percent. So, how is it trending this quarter?
A: It should be much lower than the previous two quarters. We are hopeful that our reduction in NPA should be almost equivalent to the slippages. So, we should see the gross NPA slightly coming down.
Reema: So, slippages will be lower and hopefully the gross NPA therefore will also come down a tad bit. And, you spoke about the cost of funds coming down marginally, so therefore, can we expect an improvement in your margins?
A: Our name was approximately 2.39 percent in the previous quarter. We expect it to marginally improve.
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