 "No credit demand in manufacturing: R K Takkar")
UCO Bank, grappling with significant rise in non-performing assets (NPAs), recently introduced the sustainable structuring of stressed assets (S4A) scheme. However, it needs to raise Rs 4,000 crore more this year to meet the regulatory requirement and credit offtake, says R K Takkar, chairman and managing director of government-owned UCO Bank, in an interview with Namrata Acharya. Edited excerpts:
What is your outlook for the banking sector?
We expect the stress in industry to continue; obviously, the banking sector will be affected. However, the slippages (on stressed assets) would not be of the extent which happened in the earlier quarter. Overall, we have not seen much of revival in sectors like iron, steel, textiles and power. Hopefully, the various steps taken by the government in policy matters should start bringing results. With the fresh spending on account of the pay commission’s salary revision, there should be a fillip to the consumer goods and ancillary sectors. From the fourth quarter onwards (of FY17), we expect fresh investments to take place.
We are watching the SBI (State Bank of India) merger. All public sector banks (PSBs) face stress. Once banks come out of this, a call can be taken on merger. Some small banks can be merged. As of now, there is no such proposal. There is no harm in merger but it should be based on commercial considerations.
UCO Bank has substantial exposure to the iron & steel sector. Do you see further slippages here?
All major accounts here have already become non-performing. We have exposure of Rs 5,500 crore in the sector; of this, non-performing assets (NPAs) would be about 25 per cent. There could be few more accounts slipping into this category.
Have the various debt restructuring schemes been of little use in recovery?
The 5/25 scheme, allowing banks to extend long-term loans of 20-25 years to match the cash flow of projects, while refinancing these (every five or seven years) has been implemented in many cases. SDR (strategic debt restructuring) was imposed in eight or nine accounts but the problem here is finding a new investor who is willing to take risk. So, we don’t have any success story in SDR till now. Hopefully, we should be able to do something in S4A (which envisages a division of debt dues into what is sustainable and what isn’t, and to restructure the former).
Your NPAs are significantly high. How are you looking to recover?
We are looking at resolution of some of the bigger accounts which have slipped into NPAs. If something positive happens in those accounts through S4A or anything else, we should be able to recover and reverse the provisioning we had made. We expect this could be in the range of Rs 2,500-3,000 crore. We are also planning to sell to asset reconstruction companies, to clean our book.
How prepared are you to meet the Basel-III requirement?
In March 2016, we had to maintain a capital conservation buffer of 0.625 per cent. Another 0.625 per cent has to be provided by March 2017. The capital requirement will depend on our overall performance. And, on our credit growth. This year, we would require Rs 5000 crore. We got Rs 1,033 crore from government for re-capitalisation. The balance we will have to raise from the market, either through a follow-on public issue, rights issue or a qualified institutional placement, in case the market is good.
Market conditions are not so conducive for raising capital. How would you raise funds to meet the regulatory norms?
We are expecting some improvement in market conditions in the third quarter. We will have to either go to the market or get some additional government support. We are hopeful of being able to raise a good amount from the market.
Any uptake in credit growth?
There is no demand for credit, at least in the manufacturing and the core sector — there are no fresh investments. So,our entire focus is on growth in loans for retail (individuals), MSME (micro, small and medium enterprises) or the agriculture segment.
Your pool of deposits from accounts under the special arrangement with Iran has been coming down. How will it impact your cost of funds?
There’s no fresh credit in that account, only debit. Our cost of deposits will go up. We will have to substitute it by either saving or normal deposits. Iran deposits were interest-free. Till March, we were not affected as we could maintain our cost of funds at 6.1 per cent, which is quite competitive. However, this cost should go up by 10-15 basis points once this entire fund goes away. We have around Rs 8,000 crore from the Iran accounts.
What is your outlook for the banking sector?
We expect the stress in industry to continue; obviously, the banking sector will be affected. However, the slippages (on stressed assets) would not be of the extent which happened in the earlier quarter. Overall, we have not seen much of revival in sectors like iron, steel, textiles and power. Hopefully, the various steps taken by the government in policy matters should start bringing results. With the fresh spending on account of the pay commission’s salary revision, there should be a fillip to the consumer goods and ancillary sectors. From the fourth quarter onwards (of FY17), we expect fresh investments to take place.
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What is your view on merger of public sector banks (PSBs)?
We are watching the SBI (State Bank of India) merger. All public sector banks (PSBs) face stress. Once banks come out of this, a call can be taken on merger. Some small banks can be merged. As of now, there is no such proposal. There is no harm in merger but it should be based on commercial considerations.
UCO Bank has substantial exposure to the iron & steel sector. Do you see further slippages here?
All major accounts here have already become non-performing. We have exposure of Rs 5,500 crore in the sector; of this, non-performing assets (NPAs) would be about 25 per cent. There could be few more accounts slipping into this category.
Have the various debt restructuring schemes been of little use in recovery?
The 5/25 scheme, allowing banks to extend long-term loans of 20-25 years to match the cash flow of projects, while refinancing these (every five or seven years) has been implemented in many cases. SDR (strategic debt restructuring) was imposed in eight or nine accounts but the problem here is finding a new investor who is willing to take risk. So, we don’t have any success story in SDR till now. Hopefully, we should be able to do something in S4A (which envisages a division of debt dues into what is sustainable and what isn’t, and to restructure the former).
Your NPAs are significantly high. How are you looking to recover?
We are looking at resolution of some of the bigger accounts which have slipped into NPAs. If something positive happens in those accounts through S4A or anything else, we should be able to recover and reverse the provisioning we had made. We expect this could be in the range of Rs 2,500-3,000 crore. We are also planning to sell to asset reconstruction companies, to clean our book.
How prepared are you to meet the Basel-III requirement?
In March 2016, we had to maintain a capital conservation buffer of 0.625 per cent. Another 0.625 per cent has to be provided by March 2017. The capital requirement will depend on our overall performance. And, on our credit growth. This year, we would require Rs 5000 crore. We got Rs 1,033 crore from government for re-capitalisation. The balance we will have to raise from the market, either through a follow-on public issue, rights issue or a qualified institutional placement, in case the market is good.
Market conditions are not so conducive for raising capital. How would you raise funds to meet the regulatory norms?
We are expecting some improvement in market conditions in the third quarter. We will have to either go to the market or get some additional government support. We are hopeful of being able to raise a good amount from the market.
Any uptake in credit growth?
There is no demand for credit, at least in the manufacturing and the core sector — there are no fresh investments. So,our entire focus is on growth in loans for retail (individuals), MSME (micro, small and medium enterprises) or the agriculture segment.
Your pool of deposits from accounts under the special arrangement with Iran has been coming down. How will it impact your cost of funds?
There’s no fresh credit in that account, only debit. Our cost of deposits will go up. We will have to substitute it by either saving or normal deposits. Iran deposits were interest-free. Till March, we were not affected as we could maintain our cost of funds at 6.1 per cent, which is quite competitive. However, this cost should go up by 10-15 basis points once this entire fund goes away. We have around Rs 8,000 crore from the Iran accounts.