UCO Bank eyes non-oil imports from Iran to sustain rupee-rial trade

Lender posts turnaround in Q4, awaits PCA exit

With India no longer importing oil from Iran, UCO Bank is looking at other avenues to keep the rupee payment mechanism with Iran alive.

According to A K Goel, MD and CEO of UCO Bank, the lender is in talks with importers to use the mechanism for other imports. “In the last few months, there has been no fresh inflow into the payments account. We are exploring the opportunity to import other commodities, such as fresh fruits, under the mechanism. Our role here is not only settlement, but also to facilitate trade between India and Iran,” said Goel.

In the wake of US sanctions on Iran, India cannot engage in dollar-denominated trade with Iran. Hence, a special rupee-rial trade mechanism has been put in place. Under this, oil refineries from India deposit funds into designated banks to import oil from Iran. These rupee funds are then used to clear dues of traders that export from India to Iran. UCO Bank and IDBI Bank are the two banks that support this payment mechanism, and such deposits make up for a bulk of low-cost deposits for the lenders.

However, even as oil imports have dried up, exports have not fallen as much.

According to government data, imports from Iran stood at nearly $13 billion in 2018-19, which came down to nearly $1.35 billion between April and January in 2019-20. In contrast, the fall in exports was much less. Exports to Iran stood at $3.5 billion in 2018-19, which fell to $2.80 billion between April and January of this financial year.

Rice, tea, sugar and pharmaceutical products are key items India exports to Iran, with rice accounting for the largest share.

Awaits PCA exit

The Kolkata-headquartered bank on Friday reported a standalone pre-tax profit of Rs 16.78 crore in the March quarter, on the back of good treasury income and recoveries. It had posted a pre-tax loss of Rs 1,552.02 crore in the corresponding period a year ago. 

The bank’s net profit stood at Rs 6.78 crore, against a net loss of Rs 1,552.02 crore in the year-ago period.

Goel said the bank has complied with all key parameters required to come out of the Prompt Corrective Action (PCA) framework — by bringing down its net NPA to 5.45 per cent, maintaining a capital adequacy ratio of 11.70 per cent, having a leverage ratio of 3.57 per cent and posting a positive return on asset in Q4.

“It (exiting PCA) is a call the regulator has to take but we may discuss or even write to the RBI on it,” Goel told the media in an e-interaction.

The bank hopes its overseas branches — one each in Hong Kong and Singapore — will also come out of restrictions imposed by the regulators in the two countries.

The bank made a treasury profit of Rs 244 crore in Q4 compared to Rs 67 crore in the corresponding period last year. The recovery from written-off accounts during the quarter was Rs 237 crore, against Rs 85 crore.

The bank is expecting 8-10 per cent growth in credit this financial year, primarily backed by demand coming in from agriculture, MSME and retail sectors.