See NIMs improving by 10-20 bps in Q4: UCO Bank

Arun Kaul, CMD, UCO Bank in an interview to CNBC-TV18 spoke about the bank's third quarter performance and the outlook going forward.With the cost of fund coming down, Kaul is hopeful of seeing net interest margin (NIM) improvement by 10-20 basis points in the fourth quarter from the current 2.58 percent.For the third quarter the incremental slippages were at Rs 2700 crore and sixty percent of the slippages were restructured assets, he said.

Below is the transcript of Arun Kaul's interview with CNBC-TV18's Latha Venkatesh.Q: What happened - 6 percent, last quarter 5.2 percent. Before that you were actually stabilising at 4.3 percent for two quarters. What happened in the last 6 months and what happened in the last 3 months?A: If you look at the business model UCO Bank had in the last decade - for fast growth the bank went heavily for the large corporate credit. Many of these corporate credits are facing stress. Some of them about 2-3 years back went into restructured assets. They were not perform as expected because the economy did not turn around. So, many of these accounts have now fallen into NPAs in the last one or two quarters.This quarter I have a fairly large slippage, almost Rs 2700 crore of which more than 60 percent comes through the restructured assets only. We have changed the business model; we are shifting over now to low risk assets. About 4 years back our corporate credit used to be about 70-75 percent of our portfolio, today it is less than 40 percent of the portfolio. We have substantially diversified and derisked the portfolio. However old loans they are still there.If you look at last year, we were able to sell quite a few of these asset recovery companies. Last two quarters we have not been able to do any sell at all. Plus there was one large group which was supposed to pay Rs 500 crore back, but there is some delay in that paying, probably current quarter will get back that money. So all this added to the stress in the banks portfolio. However, if you look at the operating profit side that is fairly strong. We have been able to make very strong treasury profits. This quarter our trading profit is more than Rs 480 crore which is on record in the bank. We are using this to clean up the banks balance sheet.Latha: I will come to that extraordinary growth in treasury profit but just some numbers. What were the incremental slippages?A: It is approximately Rs 2,700 crore.Latha: Of this you said 60 percent were restructured assets that went back. What about the amount of incremental restructured assets?A: We are very small, hardly about Rs 500 crore is coming. My restructured asset books has gone down, it used to be Rs 12,878 crore at the beginning of the quarter. End of the quarter is just about Rs 9,510 crore because either stepped into this while others have updated into standard assets. So, restructured book has come down.Q: Now 2,700 crore of slippages compares to what was the number in the previous quarter?A: Previous quarter was slightly on the lower side but last year it was Rs 500 or Rs 600 crore last year.Q: What‘s the structuring pipeline? Is there anything more that we might see in the fourth quarter or that won’t happen?A: No, it would be small pipe; it’s not a very big pipeline. With the third quarter restructured, it was not very large, hardly about addition of Rs 500 crore so it’s not a very large pipeline. Q: So even in fourth quarter you are unlikely to get more restructured assets?A: Yes.Q: Can you divide the sectors in which you are getting incremental Non-Performing Loans (NPLs)? Are they for instance small and medium enterprises (SME), is it Agri and in large corporate what is the total and what is the industry wise divide, approx?A: Where UCO bank is concerned most of these are large corporate credit, primarily in the sectors like steel, power, road, paper, textile, chemicals, like that sector, it's mostly in that sectors.Latha: Would you say that this is because of intransigence in government policy and if policy changed it will make a difference and at least for instance in road and power?A: It should make the difference.Latha: You have not been able to do that 5:25 recast of any the loans?A: Not yet.Latha: If that is done will there be relief?A: Certainly yes.Latha: When do you expect that the first of your changing over the loan to the 5:25 ratio will happen?A: By the end of the current quarter it should happen.Latha: What is the sense you are getting of the Non-Performing Loans (NPL) pipeline. Is it that all the poison is out or do you think that the system has more stress?A: Major pain should be out right now. I don’t think there will be any pain left now because major pain should be out because at the most another one quarter of the pain would persist and most of the accounts that had to slip have slipped now. So I don’t see a large pain going forward.Q: What about margins, have you noticed a fall in your cost of deposits? You all have lowered deposit rates haven’t you?A: We have lowered the deposit rates but we have not see a very large drop in Q3 in cost of deposits. It is more or less stagnant as it was in the previous quarter. That is primarily because some of the deposit picked up in 2013 after August when the yields suddenly went up. As and when they mature the cost of fund will start coming down. I think current quarter should see cost coming down.Q: I just wanted couple of numbers. What will your margins be in the fourth quarter, what are they now?A: Currently our net interest margin (NIM) in the domestic market is 2.58 percent. They should improve. We should see improvements at about 10-20 base point improvement in the current quarter because of the cost of fund coming down. However my margin has shrunk compared to last year because my yield advance has come down. We’ve been selectively shifting into low risk assets particularly bill discounting and all at the base rate. So, my yield advances coming down. Some shrinkage in the margin has taken place.However, with the cost of funds coming down there should be some improvement in the NIMs in the current quarter.