 "UCO Bank staff intensify turnaround effort")
Recent government fund infusion of around Rs 1,033 crore in UCO Bank may not be enough for it to meet regulatory requirement, as it needs to raise an additional Rs 4,000 crore this financial year.
Of the total additional requirement of Rs 4,000 crore capital, the bank needs to raise about Rs 3,000 crore as tier I capital. However, if the market condition is not favourable for fund raising, the bank would have to seek close to Rs 1,000 crore from the government by the end of the present financial year, said RK Takkar, CMD, UCO Bank.
"We requested the government to provide us Rs 2,000 crore, but we got around Rs 1,033 crore. We need to raise around Rs 3,000 crore as tier I capital requirement. We should be able to meet the regulatory requirement if market conditions are conducive to raise capital. However, if market conditions are not good, we would be requesting the government for further fund infusion. But our first priority will be raising the capital from the market," said Takkar.
The bank would be looking at options like follow-up public issue, rights issue, QIP (qualified institutional placement) and bonds for raising additional capital of around Rs 4,000 crore. The bank has a headroom of around Rs 1,000 crore for raising tier II capital, according to Takkar.
According to new Basel-III norms, which will kick in from March 2019, Indian banks need to maintain a minimum capital adequacy ratio of 9%, and a capital conservation buffer of 2.5% of the risk weighted assets, which amounts to a minimum CAR of 11.5%. By March 2017, RBI has prescribed banks to maintain a capital conservation buffer of 1.25% and CAR of 10.25%, against the present norm of 9.625%. At the end of fiscal 2016, UCO Bank's capital adequacy ratio was 9.63%.
UCO Bank's gross NPAs touched a record high of 15.43% in the quarter ended March 31, 2016, (6.76% in the year-ago period), while net NPA stood at 9.09% (4.3% in the fourth quarter of FY15).
As a part of its NPA recovery effort through resolution and settlement through Scheme for Sustainable Structuring of Stressed Assets (S4A) mechanism, the bank is expecting reversal on provisions, resulting in recovery of around Rs 2,500-3,000 crore, said Takkar.
This apart, the bank is expecting pressure on NIM, as its cost of deposits is set to increase by 10-15 basis points on account of lifting of sanctions in Iran. Notably, since 2012, UCO Bank has been enjoying interest-free deposits on account of rupee-trade mechanism with Iran. UCO Bank was the only conduit for payment among banks to settle trade with Iran. Under the mechanism, 45% of oil imports of Indian oil companies are settled in rupee denomination at UCO Bank. With sanctions in Iran lifted, the bank's corpus of fund from the scheme has been shrinking. Against the peak collection of Rs 23,000-25,000 crore of deposits, the corpus has now come down to around Rs 8,000 crore.
"Our cost of funds should go up by 10-15 basis points, once this entire Iran fund goes away. This could affect the NIM by 10-15 basis points," said Takkar.
