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'There is good scope to cut deposit rates'

Q&A: S K Goel, Chairman & Managing Director, UCO Bank

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Namrata Acharya Kolkata

Though the Kolkata-based UCO Bank was selective in lending to certain sectors, it has recorded more than 20 per cent rise in advances and deposits in the fourth quarter of the last financial year. The bank, which expects further softening of interest rates, plans to reduce deposit and lending rates by almost 100 basis points in the first quarter of this financial year.

The state-owned bank, which had put its plan to float a financial sector subsidiary on hold on the advice of the Reserve Bank of India (RBI), expects to launch it this year. In an interview with Namrata Acharya, S K Goel, chairman and managing director of UCO Bank, says 2009-10 will be another challenging year for the banking industry and several private sector banks may offer themselves for sale to government-owned banks. Excerpts:

 

How was the fourth quarter (January-March)?
The fourth quarter was quite good in terms of liquidity and credit offtake for the UCO Bank. Liquidity has been surplus throughout the quarter, and we have been able to increase our lending by almost Rs 8,000 crore, on a year-on-year basis. We have found adequate demand from some sectors. In some other sectors such as real estate, steel, cement and textiles we are lending on a case-to-case basis. In cases where expansion is not required, we advise companies not to expand at this time of crisis. In deposits, we expected a 20 per cent growth in the fourth quarter, but it is likely to be 23 per cent. Credit growth has been around 24 per cent against our target of 22 per cent.

Profitability is comfortable. The government had set a profit target of Rs 500 crore for the financial year, which we will certainly achieve. We will exceed the profit target.

There is a good increase in fee-based income as on a year-on-year basis it has increased by almost 28 per cent.

Have current account and savings account (CASA) deposits grown at the same pace? 
There has has been growth in CASA but it is not proportional to the growth in the total deposit. The growth in CASA is around 17 per cent. The percentage is not high as compared to the total deposits.

Have non-performing assets (NPAs) come down in the fourth quarter?
NPAs have come down substantially. Our gross NPA is likely to be 2 per cent, which used to be 3 per cent last year, and net NPA may come down to 1 per cent from 2 per cent last year.

Post-recapitalisation, how will performance of the key parameters improve?
On March 30, 2009, Rs 450 crore was credited to our bank by the government and the total approved capital was Rs 1,200 crore. We will get the remaining amount soon. With Rs 450 crore capital infusion, our capital adequacy will be above 12 per cent.

Are you planning to acquire any smaller bank?
Right now, there is no proposal for acquiring any bank. However, the committee on financial sector assessment, chaired by Rakesh Mohan of RBI, has talked about consolidation of the banking industry. The year 2009-10 will be very important in this regard. May be, some private sector banks can offer themselves to public sector banks, or there might be a takeover of a private sector bank by a public sector bank.

What are your views on government holding in public sector banks?
Some banks have already reduced government stake to 51 per cent. At UCO Bank, we have a good headroom available because the government holding is 64 per cent. We have a cushion of 13 per cent. We are not diluting that stake as market conditions are not favourable.

When do you expect to float the financial sector subsidiary?
In view of the economic meltdown, RBI has suggested to hold it for some time. Once things get normalised, we will take it up. In the proposed subsidiary, a foreign partner will hold 26 per cent stake, a domestic partner, probably a big business house, will hold 19 per cent. We hope to launch it in the new financial year.

How are you planning to enhance your retail product portfolio?
We have sought permission from RBI for sale of gold coins. We have recently tied up with Tata Motors for financing the Nano. We have identified 270 branches at around 130 centres in India for this purpose. Tie-up with other automobile companies is also lined up.

Is there any scope for further reduction in interest rates?
The interest rate scenario is softening. In the last two months, we have seen several cuts in the benchmark prime lending rates (BPLR). There is good scope to cut deposit rates, with inflation coming down. With a cut in deposit rates, there can be a further reduction in lending rates. At UCO Bank, some time in the first quarter, in the next two months, we can have a 100 basis point reduction in deposits rates, followed by cuts in the lending rate.

What is your outlook for the banking sector in the new financial year?
Bankers will continue with a cautious approach as the economic crisis is expected to last for at least one year. The year will be challenging as banks will have to realign their policies everyday according to the needs of the customers.

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First Published: Apr 06 2009 | 12:03 AM IST

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