 "UCO Bank staff intensify turnaround effort")
Last quarter, Kolkata-based 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, with Vinod Rai, chairman of the Banks Board Bureau (BBB) recently saying the bank would be ‘re-energised’ as a standalone institution and not merged, bank employees are looking to intensify measures for a turnaround.
“In the 1990s also, UCO Bank faced a crisis, and was at the brink of closure. However, on insistence from employee unions, the proposal was abandoned. Now too, as the BBB chairman has said, we are confident that the bank will survive, and we are all working hard to recover dues, mobilise CASA (current account and savings account) deposits, curtail costs and improve customer service,” said K Vijhayan, general secretary, All India UCO Bank Employees’ Association.
Notably, banks are required to set aside up to three per cent of their net profit for the staff welfare fund. The actual amount by each bank depends on the number of employees. In FY16, UCO Bank had posted a net loss of Rs 2,799 crore. Thus, the employees this year might not be entitled to the fund.
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 year-ago quarter. Sequentially, the bank’s net loss increased by around 15 per cent as it had posted a net loss of Rs 1,497 crore in the third quarter of FY16.
While UCO Bank had to make significant provisions for asset quality review as mandated by RBI, there are other factors that contributed to the bank’s high losses.
Notably, 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 per cent 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 23,000-25,000 crore of deposits, the corpus has now come down to around Rs 10,000 crore. This apart, the NPAs at UCO Bank are on a higher side due to the high share of corporate loans in the bank’s lending portfolio. While most banks have a corporate-retail mix of 50:50, in case of UCO Bank, the share is around 60 per cent, leading to higher NPAs, according to Charan Singh, executive director of UCO Bank.
UCO Bank’s gross NPAs touched a record high of 15.43 per cent in the last quarter (6.76 per cent in year-ago period), while the net NPA stood at 9.09 per cent (4.3 per cent in fourth quarter of FY15).
If the net NPA of a bank is 10-15 per cent, RBI-imposed restrictions set in, such as limitation in entering new lines of business, making dividend payments, increasing stake in subsidiaries, and special drive to contain NPAs.
In the last quarter, the total provision & contingencies for the bank was Rs 2,283 crore, against Rs 1,018 crore in the corresponding quarter of the previous year, a growth of 124 per cent. The provision coverage ratio of the bank rose to 53.87 per cent in the fourth quarter of FY16, against 52.65 per cent in the year-ago quarter.
