UCO Bank sees treasury gains, hopes to maintain NPL levels

Q: Liquidity has been a pleasant surprise for the banking system. There have been USD 34 billion FCNRB deposits plus the RBI carried out open market operations of Rs 10,000 crore and did not hike interest rates. Are you likely to post some decent mark-to-market gains on your bond book for Q3?

A: Liquidity has been very comfortable. Because of the FCNRB deposits, banks have raised USD 34 billion. In addition, the RBI has been providing liquidity in this busy credit season plus it kept rates unchanged.

That should certainly help the banks’ treasury management. Banks may not suffer the way they did in the previous quarter on treasury losses.

Bond yields have started coming down already -- the 10-year has come down to approximately 8.76 percent, with sentiment saying the yield is expected to go down further.

So, the bank treasury should be comfortably placed this quarter.

Q: A couple of your peers like State Bank of India (SBI), HDFC, etc have reduced the home loan rates. Will UCO Bank consider it; is it under consideration?

A: We have already reduced the rates earlier and today our home loan rate is 10.20 percent. It is one of the lowest in the banking industry.

Q: Just to cater to the festive season, are you considering tweaking your rates in any other bucket?

A: We have done it. We did reduce the rates on retail advances earlier as well at the beginning of this festive season.

Q: Just to finish that liquidity point let us assume that yields are at 8.7 end of trade on December 31. How does it work in terms of provisions; you can write-in some provisions, can you?

A: There could be small write-backs.

Q: Normally you can write-in provisions if you made gains, is it?

A: Yes, correct.

Q: Let me come to the non-performing loan (NPL) position. Before I get your views on the discussion paper itself, how are NPLs progressing? Is there some pain? We hear a lot of state electricity boards are not paying back what they owe. So, a lot of SME transmission and distribution (T&D) firms are under stress. Likewise, there have been problems for road contractors and their sub-contractors. Will you see further pain or will you be able to show the improvement you showed in the Q2 on your gross NPLs?

A: We are hopeful that our gross NPLs will remain where near where they have been in the last four quarters: around 5.3 percent. We should be able to keep either 5.3 or marginally below that.

Q: Since you have already reduced your rates earlier could you tell us whether the loan growth in Q3 will be much better than what we have seen in the previous quarter and roughly what it could be if you could just tell us what the advances and deposits picture will look like

A: Our credit growth has been approximately 14 percent or so. We hope to maintain the same trend. We are not expecting very large growth for the simple reason that we have been shifting away from the large corporate credit of small midcap agriculture, etc segments. We expect our growth like what we saw in the previous quarter, same trend to maintain that will be around 13-14 percent growth or so.

On the deposit side too, we have been showing growth of 15-16 percent; the same trend will be maintained. So, we don’t see any major change in the trend from what we saw in the previous quarter.

Q: Your gross NPLs fell but your slippages had risen quarter-on-quarter. How will that trend pan out?

A: We are expecting this quarter of slippages to be either equivalent or less than our recovery upgradation write-offs. Our gross NPL should come down slightly.

Q: Your view on the paper put out by the RBI, do you think initially there could be a rise in NPLs because now you are asked to form a central repository where all the persons who have not paid their interest in the first month will be known as special memorandum account (SMA-I), guys who didn’t pay interest in two months will be known as SMA-II. With this knowledge they may not have enough elbowroom to arrange finances from other banks so is there a possibility that while this is good in the long run initially there is a spurt in NPLs?

A: It is good in the long run because we will be able to keep pressure on the borrowers. We know the situation and the other banks will be able to keep pressure. Earlier what they were doing, we were paying from one bank to the other, that won’t be there.

Now banks as a whole can put pressure on them. Many of the NPAs come up because information is lacking; there is asymmetry. Now, everybody knows about this, banks can act in concert, we can act after the borrower and ensure that they keep up the promises and they don’t pay one bank to another.

Q: Let me give you a point blank question, net-net if the discussion paper became actual rules how would you see the first two quarters impact your bank for instance?

A: I don’t see a very large impact for as UCO Bank has been going very slow on the large corporate credit in the last three years. We have been putting more focus on small advances. So, the large corporate book has substantially come down. Wherever there was pain has already come out. I don’t see any additional pain. So, we are not unduly worried.

Q: Those with large corporate exposures could be more pressured?

A: Correct.

Q: Just a word on margins; how will Q3 and Q4 pan out?

A: We have been able to maintain a fairly good CASA. Our CASA which did go up to 35 percent is currently holding at about 33-34 percent. We should be able to maintain our spreads. In the previous quarter too, the domestic net interest margin (NIM) was above 3 percent.

We should be able to maintain it this quarter as well. Although external deposit that we raised might slightly increase the cost of funds, but we will should still be able to keep NIMs above 3 percent.