UCO Bank expects to return to profitability by FY18

Bank will not take any fresh exposure to large corporate firms under a new turnaround strategy

Kolkata-based UCO Bank expects to return to profitability only by the financial year 2017-18, as it foresees stress in banking sector to continue this fiscal.

The bank has chalked out a turnaround strategy, under which it will not take any fresh exposure to large corporate firms, focus on retail lending and beef up its capital base by raising as much as Rs 5000 crore by way of bonds and government fund infusion, said R K Takkar, chairman and managing director, UCO Bank, at the 13th annual general meeting of the bank.

The bank plans to raise close to Rs 3000 crore by way of bonds this financial year. The bank expects a fund infusion of Rs 2000 crore from the government, according to Takkar.

This apart, UCO Bank was also trying to sell close to Rs 2000 crore of bad loans to asset reconstruction company by September this year, added Takkar.

"Overall there has been a stress in economy for quite some time. We don't see much improvement as of now. More than 50% of our advances are to the corporate sector. Once the economy shows signs of improvement, these accounts should turnaround. By next financial year, we expect the bank to return to black," said Takkar.

Notably, with the sanctions lifted in Iran, the bank has seen a substantial dip in it low cost deposits. 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 22000 crore of deposits, the corpus has now come down to around Rs 9000 crore.

Last quarter, UCO Bank emerged as one of the worst performers in the banking sector. Mounting non-performing assets (NPAs) weighed heavy on the bank's balance sheet, steering it closer to the Reserve Bank of India's (RBI) prompt corrective action triggers, along with a possible candidature for merger with a stronger bank. However, the bank has denied reports of merger.

"There is no plan of merger of UCO Bank. The bank has not received any notification in this regard," said Takkar. UCO Bank had posted a net loss of Rs 1,715 crore in the fourth quarter of FY16, against a net profit of Rs 209 crore in the fourth quarter of FY15.