Reaching Out

UTI Bank promises to deliver good results in coming months. Investors can hold on to their investments in the stock

UTI Bank isn't a bank that figures high on the "instant recall" list of younger generation private sector banks. A live wire it's not, but analysts say a few factors have begun emerging in its favour of late.

In fiscal 2001, its total deposits stood at Rs 9,092 crore while total advances added up to Rs 4,821 crore.

Retail exploits

While corporate banking still delivers most of the business for the bank, retail banking and fee-based operations are rapidly gaining prominence. It's a trend that's been clearly visible in the banking industry for quite some time now.

Faced with crimping margins and stiff competition in the corporate banking business, nearly all Indian banks have started banging the retail drum. Like the others, UTI Bank too, has concluded that snaring more retail clients will be key to improving and sustaining future profitability.

Here, the bank is sticking to the tried-and-tested formula that has brought success to many of its bigger rivals: expanding the number of branches and automated teller machines (ATMs) and offering different loan products.

Still, this low-profile bank has managed to zip ahead of its more visible rivals with its ATM expansion. Many investors will be surprised to learn that the bank currently operates the second-largest ATM network in the country.

This large web of ATMs is turning to be a powerful magnet for many other not-so-well-networked banks looking to hitch a ride into the lucrative world of retail banking. Recently, French bank BNP Paribas, eager to take the retail plunge, shook hands with UTI Bank on a deal that allowed customers of both banks to use each other's ATMs. While UTI Bank has 418 ATMS, BNP Paribas's number around 20.

The deal is expected to boost UTI Bank's fee-based income. And the action in the retail arena continues. "The Bank has tied up with the Boston Consulting Group to help identify the opportunities and refine strategies for increasing market share and maximising revenues from retail operations," says Hemant Kaul, senior vice-president - retail banking, UTI Bank.

Still, analysts point to one chink in the retail armour - low-cost deposits still form a very modest proportion of total deposits. Low-cost deposits -- consisting of demand and savings deposits -- in fiscal 2001 totalled Rs 1398 crore - 15 per cent of total deposits.

That falls well below the trend line seen for these deposits among new private sector banks. UTI Bank is trying to remedy that by devising products designed to woo more low-cost deposits.

Other avenues

Over the past ten months, strong gains have also accrued from non-interest income, consisting primarily of trading gains and fee-based income. Falling interest rates, especially, have played a key role in delighting bond markets and handing out hefty trading gains to bankers in the recent past.

In the six months to September, the bank's treasury operations reported an income of Rs 335 crore and accounted for 38 per cent of profit before tax. Other earning avenues include selling mutual fund products and providing merchant banking services.

Some concerns

Nevertheless, two factors continue to hound sentiment. One relates to its rather high exposure to the capital market sector, which at Rs 321 crore, was equivalent to 6.6 per cent of total advances (fiscal 2001). Banking regulations limits total capital market exposure to five per cent of all outstanding advances. The bank has been trying to reduce that exposure.

Bearing the "UTI" name has also been a millstone around the bank