UCO Bank has been grappling with significantly high NPAs for quite some time. The bank is expecting some high value accounts ,which have slipped into NPA, to recover through resolution and the recently introduced S4A scheme. However, it needs to raise close to Rs 4,000 crore more this year to meet regulatory requirement and credit offtake. R K Takkar, CMD, UCO Bank, in an interview with Namrata Acharya, shares his views on the roadmap for UCO Bank. Edited Excerpts:
What is your outlook for the banking sector?
As far as the stress in the industry is concerned, we expect it to continue. Obviously the banking sector will be affected by it. However, the slippages would not be of the extent which happened in the last quarter. Overall we have not seen much of revival in sectors like iron and steel, textiles and power. Hopefully from the last quarter onwards, the various steps taken by the government in policy matters that should start bringing results. With the fresh spending on account of the Seventh Pay Commission, there should be a fillip to the consumer goods and other ancillary sectors. From the fourth quarter onwards also we expect some fresh investments to take place.
What is your view on merger of PSU banks?
We are watching SBI merger. All PSU banks are facing stress. Once the banks come out of the stress, 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 of banks , but it should be based on commercial considerations.
UCO Bank has a substantial exposure to the iron and steel sector. Do you see further slippages in the sector?
As far as iron and steel is concerned, all the major accounts have already become non-performing. We have a major exposure in the iron and steel industry, so no doubt we are affected by it. We have an exposure of around Rs 5,500 crore in the sector. Of this, NPA would be around 25 per cent. There could be few more accounts slipping into NPA. Iron and steel sector is under watch.
Do you think that various debt restructuring schemes have been of little use in recovery?
As far as the 5/25 scheme is concerned, in many cases it has been implemented, but as far as SDR is concerned, it was imposed in quite a few accounts in eight or nine accounts. However, the problem is in finding a new investor who is willing to take the risk. So we don't have any success story in SDR as on date. But hopefully we should be able to do something in S4a.
Have you imposed S4A in any of the accounts?
We have sought RBI clarifications on certain aspects. There were doubts about the operational aspects, making provisions for the debt which is getting converted into equity. These are just operational issues which will be sorted out. In the meantime, banks are actively examining four or five proposals.
How prepared are you to meet Basel III requirement?
In March 2016, we had to maintain capital conservation buffer of .625 per cent. Another .625 per cent has to be provided by March 2017. The capital requirement will depend on bank's overall performance. It also depends on our credit growth. This year we would require Rs 5000 crore. We got Rs 1033 crore from government recapitalisation. The balance we will have to raise from the market, either through a follow-up public issue, right issue or QIP, in case the market is good.
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Market conditions are not very conducive for raising capital for banks? How would you then raise funds to meet regulatory norms?
We are expecting in the third quarter there should be some improvement in the market conditions. We will have to either go to the market or we will have to get some additional support from the government. We are hopeful that we would be able to raise a good amount from the market itself.
Have you seen any uptake in credit growth?
As of now, what we are seeing is that there is no demand for credit, at least in the manufacturing and the core sector, as we are not seeing any fresh investments. So our entire focus is on retail growth, MSME or agriculture segment.
Your pool of deposits from accounts under special arrangement with Iran has been coming down. How will it impact your cost of fund?
Now we are not getting any fresh credit in that account, there is only debit. Our cost of deposits go up. We will have to substitute it by either a saving or normal deposits. This Iran deposits were interest-free deposits. Till March we were not affected as we could maintain our cost of funds at around 6.1 per cent, which is quite competitive. However, cost of funds should go up by 10-15 basis points, once this entire fund goes away. Now we have around Rs 8,000 crore from Iran accounts. NIM (Net interest margin) there could be affected by 10-15 basis points on account of Iran outgo.
UCO Bank's NPA are significantly high. In such scenario what is the roadmap for recovery?
What we are looking at resolution of some of the bigger accounts., which have now slipped into NPA. If something positive happens in those accounts through S4A or anything else, we should be able to recover and reverse the provisions which 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 ARCs to clean our book.