Right to debar some promoters but SMEs deserve relaxed rules: UCO Bank MD

'Frauds have been happening in banks, but now the magnitude has gone up substantially,' says R K Takkar

UCO Bank has been under prompt corrective action by the Reserve Bank of India (RBI) in view of high non-performing accounts. The bank has an exposure of Rs 90 billion in the two list of major defaulters referred by the RBI to the National Company Law Tribunal (NCLT). Its net loss widened to Rs 10.16 billion in the December quarter as gross bad loans ratio hit over 20 per cent. R K Takkar, managing director & chief executive officer, UCO Bank, tells Namrata Acharya that barring existing promoters from bidding in big cases was justified, though for SMEs, norms should be relaxed. Edited excerpts:

Do you see need for any provisioning on account of the Nirav Modi fraud? What was your total exposure to the fraud?

No. As far as the Nirav Modi fraud is concerned, Punjab National Bank (PNB) is already paying and we are not taking any hit on account of that. PNB has already paid whatever was the amount due till March 31. 

Our total LC (letter of credit) amount was about Rs 26 billion.

What has been the impact of the ban on letters of undertaking (LoUs)? Are you realigning your overseas business strategy?

There is no immediate impact on the bank itself. However, in case of trade finance, exporters would have to find alternatives for meeting their obligations. Cost of funding many go up for exporters. LoU was not a big part of our overseas operations, but obviously it constituted a part of operations. That business won’t be there. Now, the focus will be on normal LC business, foreign currency loan and syndication products.

Have you started rationalising your foreign operations?

Yes, we have already taken a decision to merge two branches each in Singapore and Hong Kong.

What is your exposure to two list of defaulters referred to IBC by RBI? What are your views on recent RBI relaxations on provisioning on account of these loans?

We have an exposure of around Rs 90 billion in the two lists referred to the NCLT by the RBI. So, we had to make 50 per cent provision, but after the RBI relaxation we can make provision of up to 40 per cent. That is a call that we are yet to take, whether we want to do to it or not.

A large number of cases in both the lists are stuck in litigations. Do you think promoters should get some leeway in the bidding process?  

The NCLT is a new concept and is in an evolving state. Many issues are coming up, and they are bound to happen. As far as debarring existing promoters is concerned, I feel it is right to debar some of the promoters, or else the same promoter takes benefit and takes control of the company, and yet not able to perform. In that case, we are losing more money. However, in case of SMEs, it is difficult to find a new promoter. So in that case, provided the promoter is not a willful defaulter or has not diverted funds, there should be some flexibility, which will bring in more competition.

What is your view on rising number of frauds in public sector banks, and what lessons have you drawn from the recent frauds?

Frauds have been happening in banks, but now the magnitude has gone up substantially. We have to make our system more robust. Our IT systems need to be strengthened, and people need to be sensitised. Whether it is through IT improvements or manually, we are trying to strengthen our systems. But IT cannot be changed overnight. We have started taking steps. In the meantime, we have put more controls in place to ensure such frauds do not occur. For example, in SWIFT messages now we have central monitoring department. Similarly, now we have an offsite surveillance department.

How long do you think that the banking sector will reel under unprecedented high levels of NPAs?

It is very difficult to project, but most of the accounts have been taken care of, whether in the NCLT or otherwise. But a lot depends on the industry, how it behaves in the future. Once the amount stuck in the NCLT starts coming into the system, it will be an ongoing process as we will see inflows also. I think by the end of this financial year, things should look positive.