We find some stress in restructured accounts, says UCO Bank MD & CEO

SOMA SANKARA PRASAD, managing director and chief executive officer of UCO Bank, says the bank is exploring the possibility of raising capital via additional tier 1 (AT1) bonds, even if the Kolkata-based state-owned lender is comfortable with its capital position that, he says, is sufficient to fund its growth plans. In conversation with Manojit Saha, he says the bank is seeing good demand for term loans from sectors like cement and steel. Edited excerpts:

Do you see credit growth momentum sustaining in the second quarter of 2022-23 (FY23)? Which sectors are witnessing demand?
 

Credit growth momentum will persist. It has picked up after Covid-19 in retail, especially home/car loans. We expect higher demand during the festival season.

On the wholesale side, we also see loan proposals in sectors like cement, steel, and infrastructure. A lot of non-banking financial companies are looking for funds. We also have demand from some oil companies. These are proposals we are seeing on the corporate side.

Corporate demand is for both working capital and term loans. But we see greater demand for term loans. We find steel and cement units going into expansion mode.

What is the credit growth outlook for UCO Bank in FY23?
 

We are looking at somewhere between 12 per cent and 14 per cent credit growth. There is an upward revision in expectation. We have seen public sector banks grow 14 per cent in the April-June quarter. Credit growth has picked up from where it was last year.

While gross non-performing assets (GNPAs) have come down, they are still high at 9.37 per cent in the first quarter of 2021-22 at Rs 9,739.65 crore. How are you planning to bring down gross NPAs?

One way is through recovery. There are various accounts where the resolution process is underway via the National Company Law Tribunal (NCLT) or debt recovery tribunals. Srei, Future Retail are in NCLT.

There are several accounts of the Infrastructure Leasing & Financial Services that are in various stages of resolution. The whole idea is to prevent fresh slippages. I don’t have any corporate account under stress. Yet the restructuring that happened during Covid-19, we find some degree of stress in the restructured account — in micro, small and medium enterprises (MSMEs), in retail, where repayment started after the restructuring period was over. We are following up on that.

Similarly, we have kisan credit cards, where there are slippages. We are closely monitoring these accounts because we do not want them to slip into NPA.

About 15-20 per cent of the restructured book of retail and MSME is under stress. We are hopeful that we will be able to pull back those accounts.

UCO Bank was keen to sell Srei Group to the National Asset Reconstruction Co (NARCL).
 

We have sent the preliminary information memorandum to NARCL. NARCL has to come back with a firm offer for Srei. Once it comes back with an offer, we will look into it.

Capital adequacy of the bank was 14.3 per cent. Will you be raising capital to fund credit growth?

Even if we grow 40 per cent in advance, my capital is adequate. Since we are making profit, this will be added to the capital. I don’t need to raise fresh capital. We are exploring the possibility of raising funds through AT1 bonds. If they are available at a reasonable price, we are not loathe to raising some money via perpetual bonds.

How much do you plan to raise via AT1 bonds?
 

We are looking at the possibility of raising about Rs 500 crore.

Deposit growth is lagging behind credit growth. Do you expect deposit growth to pick up as banks raise deposit rates?
 

The repo rate has gone up. For most banks, about 40 per cent of the loan portfolio is linked to the repo rate. The moment there is an increase in repo rate, it passes on to retail and MSME customers linked to repo.

Forty per cent is linked to the marginal cost of funds-based lending rate where the rate of transmission happens with a lag. What has happened is that initially banks had a lot of liquidity. With credit growth picking up, some banks are raising money through certificates of deposit (CDs).

There will be some revision to the deposit rate. Once the deposit rate goes up, deposit growth should also pick up. Depositors will get real return on their deposits.

As far as UCO Bank is concerned, our credit to deposit rate is quite low at 58 per cent. We have ample liquidity. We do not have any issue for funds through deposits.

What is UCO Bank’s deposit growth target for FY23?
 

We have set a target of 8-9 per cent. Since our CD ratio is low, this will be sufficient, even if we grow loans at 14 per cent.

We are looking at expanding our current account savings account. That will help to bring down the cost of funds. We are at 40 per cent, while the industry average is 44-45 per cent.

What is your guidance on margins?
 

In a rising interest rate scenario, all advances will be re-priced immediately.  But only fresh deposits will get re-priced. So margins should improve. We are targeting 3 per cent net interest margin for FY23.