A few quarters ago, UCO Bank
posted a huge loss, turning out to be one of the worst-performing public sector banks (PSBs). While non-performing assets (NPAs) weighed heavy on the balance sheet, its weaning Iran deposits
added to the cost of funds.
from the Iran
accounts have come down from a peak of around Rs 25,000 crore to Rs 2,200 crore at present. But, after demonetisation, the bank has received close to Rs 24,000 crore as deposits, which would help the lender to offset the impact
of falling deposits
from the Iran
were zero cost, that from demonetisation
will bear a minimum cost of four per cent; still, the bank sees a marginal improvement in net interest margin (NIM) on account of lower cost of funds.
“Without exchange, the total deposits
were close to Rs 24,000 crore from demonetisation. It has to some extent helped offset the impact
of outflow from Iran
deposits, but it is also a temporary phenomenon. Of this, only 50 per cent has come to savings or current account, which will also be there for a temporary period of two to three months. There would definitely be some improvement in NIM, but not to a great extent,” the lender’s Managing Director and Chief Executive Officer R K Takkar told Business Standard.
Since 2012, UCO Bank
has been enjoying interest-free deposits
on account of the rupee-trade mechanism with Iran. UCO Bank
was the only conduit for payment among banks to settle trade with Iran. Under the mechanism, 45 per cent of oil imports of Indian oil companies are settled in rupee denomination at UCO Bank. With sanctions on Iran
being lifted, the bank’s corpus of funds from the scheme has been shrinking.
Between the first and second quarter of the current financial year, the bank had seen losses come down, while margins are improving. The bank’s net loss came down from about Rs 1,715 crore at the end of Q1 to about Rs 385 crore at the end of Q2 of FY17. The bank’s NIM stood at 2.33 per cent at the end of September 2016, against 1.63 per cent at the end of Q1 of FY17.
The bank, which has seen almost no growth in credit offtake so far in this financial year, is expecting three-four per cent credit growth this year on account of falling cost of funds. The bank on Tuesday reduced the MCLR (marginal cost of fund-based lending rate) across various tenure by 70-80 basis points. After the reduction, the MCLR of the bank for one-year tenure is 8.60 per cent.
“We have already reduced MCLR by 70-80 basis points. Now for one year, MCLR is at 8.60 per cent. Due to flow of funds due to demonetisation, the cost implications we have reduced,” said Takkar.
Notably, with Bank of Baroda offering lowest interest rate of around 8.35 per cent on home loans, the bank would face intense competition in the home loan market. The bank is looking to have tie-ups with institutions and builders to push home loan products.
“There is a market for everybody; other than rates, what matters is turnaround rate. If we can tie up with builders, institutions and their employees, we can increase our home loan portfolio,” Takkar said.