Have recognised Zoom Developers a/c as NPA: UCO Bank

Public sector bank, UCO Bank, has raised its base rate from 8% to 8.5%. The bank is looking at reviewing its plan to enter the equity market with an FPO. It had planned to sell 6 crore shares to raise Rs 400-500 crore and had received government clearance for sale of equity in the middle of 2009.

The bank had received Rs 373 crore from the government in July for recapitalisation. It had sought a further Rs 1300 crore from the government. The government’s stake in UCO Bank currently stands at 63.59%.

The bank is also said to have a large exposure along with 26 other banks through its lending to Zoom Developers, in the alleged Rs 2700 crore fraud, which is being spoken of as the biggest banking scam in the country, currently being probed by the CBI.

In an interview with CNBC-TV18's Latha Venkatesh and Anuj Singhal, Arun Kaul, Chairman, UCO Bank spoke on the bank's expectations on credit growth and net interest margins in the current year.

Below is a verbatim transcript. Also watch the accompanying video.

Q: If you can take us through your capital raising plans, there was talk about a follow-on public offer, the government has also given you some money, I think Rs 373 crore in July what more is due from them. How will your capital look by March 31?

A: We are not looking at the capital raising right now. Yes, the board has already approved an FPO plan. We are going a bit slow on that. Considering more on the health of the portfolio in the CASA and other issues in the banks, we have not applied ourselves for this because we are quite comfortable with the capital adequacy. We are around 13% and hope to maintain it around that level by March.

Q: Tell us about business, how are credit growth and margins panning out? What may you end the year in terms of NIMs and in terms of credit growth?

A: As far as the credit growth is concerned, September 30 initial figures indicate that we have a deposit growth of about 19% odd and credit growth of about 22-23%. Our target is to maintain around 20% credit growth for the full year. As far as the NIMs are concerned, last year, September, our net interest margin was at about 1.98%, marginally below 2%.

But there was fairly good improvement by March 2010 and it went above 2% and in June 2010 it went above 3%. We hope to maintain it around that level because we have paid off some high cost deposits. So we hope to maintain around 3% or so as far the NIMs are concerned.

Q: What about NPAs because in Q1 it was a mixed picture. The gross NPAs were up while net NPAs were down so going forward what could be the trend?

A: We will have to wait for a little more time and see how it is but yes, the health of the portfolio is certainly a cause of concern as we have said earlier also, and that is where we are putting a major focus on. We are adopting various means to reduce the NPAs. In the last one month that I am here a lot of efforts have been put into arresting slippage, recovering NPAs and the reasonable success that we have achieved in that.

We are hopeful that we will be able to improve the health of the portfolio. We have also created a separate vertical for asset recovery where the major focus is only on the recovery of the NPAs. We are also trying to sell off some stressed assets. So all said and done we are hopeful we will be able to contain the NPA menace and improve the health of the portfolio.

Q: Your CASA ratio is quite low compared to some of the other banks at about 24-25%. What is the target and by what time do you plan to achieve the target?

A: Like I said earlier also there are three challenges I look in the bank. One is health of the portfolio, second is CASA and the third is HR issues. So far as CASA is concerned at 24-25%, we are much below than peer bank and the reason for the low CASA has been because the bank has been relatively slow in acquiring new customers. Our customer base is very small compared to other banks of the same size.

We have total depositors ranging between 1.2 and 1.3 crore, which is relatively small in number. We have started aggressively acquiring new customers, opening new accounts. We are also putting a lot of focus on our frontline staff at the branches.

In addition the bank is 100% Core Banking Solution (CBS) and we are not going to leverage on that advantage. So we are looking at using technology, leveraging the technology to get benefit. For example, we have a very small number of ATMs at just about 400 odd ATMs with us.

So we are trying to include number of ATMs and so the alternate delivery channels can be improved upon. So we would be very comfortable if we reach in another one year's time about 30% CASA. That’s what we are trying to do.

Q: Your gross NPAs grew by about Rs 400 crore or Rs 375 crore in the Q1 that’s 1,929 crore. That increase was it because of this one account which is now hitting headlines the Zoom Developers’ account. We understand the CBI is stepping in. can you update us on that. Have you already recognised it as an NPA?

A: Yes, we have recognised it as an NPA.

Q: What do you think is the status? Is the CDR possible or if the CBI steps in, CDR is not possible. How does that go ahead now?

A: It has been referred to the CBI so I am not aware what happened thereafter but yes, it's been referred to the CBI for approval. No decision has been taken on this as yet.