Despite a difficult FY’13, there are obviously some strong points to UCO’s Q4 as well as FY‘13. For instance, it was on the back of a remarkable 44.39% rise in Operating Profit in the last quarter of FY13, that the Bank registered 19.41% growth in Operating Profit during the fiscal, to reach a figure of Rs. 3357 crore. Q4’s Net Interest Income has increased by a robust 28.3% to mark Rs. 1348 crore from Rs 1050.6 crore in the year-ago period. Growth in Operating Profit and NII are reasonable indicators that the bank’s core performance is still healthy.
There is also a marginal dip or containment in Net NPAs on a QoQ basis. The Capital Adequacy Ratio stood at 14.22% as against 12.35% on a YoY basis and 13.19% on a QoQ basis. What all these shows is that the top management headed by veteran banker Arun Kaul has been hard at work, and that the chief promoter, Government of India, is backing his team’s efforts with the requisite capital backing.
Though UCO is a relatively small bank by net profits - it is the 18th ranked among 24 listed PSU banks - it has several important contributions to the Indian economy. UCO is not only the lead-bank in 34 districts, but these districts are spread over 7 Indian states, thereby making UCO’s contribution to the Indian banking system very important. And even with its small size, UCO accounts for more than 2% of both Indian deposits and credit.
And there are even more unique contributions from UCO’s part to the Indian economy. UCO has been handpicked by the Indian Government for maintaining the over Rs. 12,000 crore current account deposit for India's oil payments to Iran. What this means is that UCO Bank’s funding profile is much more improved than peers, owing to the reduced cost of funds. And it helps not just the bank, but India’s economy too. India’s crude oil import from Iran by IOC under the mechanism facilitated by UCO was worth $7 billion during the last 13 months that this arrangement was in place. All of it was done in rupee-terms saving dollars during a period when the Indian currency saw a steep fall against the dollar. Though it is difficult to quantify the exact gains for the rupee from UCO‘s participation, currency experts feel that had the mechanism not been in place, the $7 billion outgo pressure could have pushed down rupee further during FY‘13.
Strategy-wise too, CMD Kaul’s initiatives have delivered. The bank recorded stable operating costs in FY’13, as reflected in lower cost-to-income ratio of 39.3%. UCO Bank has also taken the pioneering first-step in being stringent with apparent wilful corporate loan defaulters. In an unprecedented move that took even the biggies of PSU banking, like SBI, by surprise, UCO published in leading dailies the defaulting status of Nitin Kasliwal of S Kumar’s in what is obviously a ‘naming and shaming’ strategy towards a big shot. S Kumar’s and its Reid & Taylor clothing brand, are well-known in the country thanks to its endorsement by Bollywood superstar Amitabh Bachchan, but owes over Rs. 100 crore to UCO Bank as a defaulted loan, even while it remains a reasonably profit making company.
The move is now widely regarded as not only a first step by any Indian bank against corporate bigwigs, but as a follow-up to Finance Minister P Chidambaram’s extortion to PSU banks to go after the prosperous promoters behind sick companies. Such firm convictions from the part of Arun Kaul is what makes the market believe that UCO Bank would be one of the first beneficiaries when the economy improves.
Seasonal Magazine in conversation with Chairman Arun Kaul to find out the prospects of the Kolkota headquartered lender:
UCO Bank’s FY’13 net profit is down sharply. What were the issues contributing to it?
During the year 2012-13, banking industry faced various critical challenges with stress building up in the corporate sectors, infrastructure projects getting stalled, and exports declining. The Net Profit of the Bank for FY’13 was Rs. 618 crore as against Rs.1109 crore last year. The decline was mainly because of rise in Gross NPA percentage that reached 5.42%, due to this challenging economic environment in the country, and because of some legacy issues that are being addressed with full vigour. From Rs. 756 crore in FY’12, Bank’s Provisions towards NPA surged 135% in FY’13 to touch Rs. 1779 crore.
Apart from these two issues, were there any other factors affecting profits?
Yes, Bank’s provision towards pension and other employee benefits rose 29.11% to reach Rs. 757.94 crore. But despite all these, what I would stress is that on an operational and strategic level, we performed very well.
Can you explain the operational aspects of your performance in FY‘13 as well as Q4?
Definitely. Despite the backdrop of a very challenging environment, UCO Bank posted a higher Operating Profit growth of 19.41% YoY during FY’13 against 4.32% growth during the year FY’12. This yearly growth was significantly contributed to by Q4. It was on the back of a remarkable 44.39% rise in Operating Profit in the last quarter of FY13, that the Bank registered 19.41% growth in the fiscal, to reach a figure of Rs. 3357 crore. This not only reflects UCO’s strong operating efficiency, but the fact that this improved situation has been most recent.
That definitely also means that you are experiencing growth on the income front. How did NII and total income grow in FY’13?
Bank’s Total Income clocked a growth of 13.5% YoY at Rs. 17,704 crore on the back of 14.5% increase in interest income that reached Rs. 16,752 crore. The Net Interest Income of Rs. 4,582 Crore registered a handsome gain of 17.42% YoY during FY13.
Apart from the rise in income, what all contributed to the operational improvement?
There were two major factors aiding operational excellence. Firstly, UCO Bank’s Cost-to-Income Ratio declined from 42.24% in FY12 to 39.33% in FY13, reflecting continued improvements in operating efficiency. Secondly, during FY13, UCO Bank’s Business-per-Employee grew by 7.70% to reach Rs 13.43 crore. In the ultimate analysis, any Bank’s results depends to a large extent on the productivity of its employees, and the full team of UCO has delivered on that front.
Coming back to bottomline issues, you mentioned the impact of rising NPAs and provisions. How are you strategically battling it?
We are focusing on Cash Recoveries as well as prudent handholding in deserving cases so that potential accounts are upgraded. With macro forces badly impacting the banking industry’s asset quality during FY13, the Gross NPA percentage of UCO Bank reached 5.42%. Nonetheless, focused and persistent recovery efforts resulted in 25.8% YoY increase in Cash Recovery that reached Rs. 828 crore. In FY13, Bank could also upgrade accounts involving Rs. 673 crore to standard category, up from Rs. 417 crore during the last year.
Margins are under pressure in almost all banks including UCO. What have been your strategies, and how far have they delivered?
Regarding margins, our strategies are mainly about upping CASA deposits and growing our retail business. And these strategies are already showing results. The domestic CASA deposits registered a YoY growth of 63.50% and Bank’s CASA-deposits-to-domestic-deposit ratio stood at 34.96% as on Mar’13, up from 23.85% a year ago. During FY13, UCO Bank also took some major initiatives in the Retail Banking space. The Bank launched several new deposit products and mobilized around Rs. 13,500 crore of deposits through these schemes.
Can you provide details about some specific products that were successful?
A current account scheme christened ‘UCO Care’, having special features like 90% OD facility against liquid collaterals, free NEFT, account statement, debit card & other facilities, was launched during the FY and is getting good response from public at large.
Every PSU bank is said to be focusing on retail, but what are the specific strategies for the same at UCO? And how far has been the delivery?
Our specific strategies have been to increase our reach, as well as to leverage technology. During the year, 220 branches were opened, 698 new Ultra Small Branches were started, and the ATM network of the Bank was also expanded with the installation of 698 new ATMs during the year. Regarding delivery from these strategies, in FY’13, new client acquisition i.e. those who had no relationship with UCO Bank before 1st Apr’12, stood at 29.35 lakhs, which translates to a rate of almost two and half lakhs new customers per month.
And regarding tech, how is UCO Bank leveraging on it?
UCO Bank uses technology to the optimum level for efficient service delivery, fast product launches, improving visibility and outreach, cutting costs, having incisive data analysis, and in ensuring better control and monitoring. Leveraging technology, the Bank has been introducing new customer centric products and facilities at regular intervals.
How is UCO Bank faring on the Capital Adequacy front?
As on 31st March, 2013, UCO Bank’s Capital Adequacy Ratio stood at a high level of 14.15% under Basel II as against 12.35% a year ago. The Tier I Capital also rose to 9.06% from 8.09% last year.
Public sector banks are going through a period of manpower crunch, while courts are finding problem with banks recruiting from B-School campuses. How are you addressing these issues?
In order to tackle the twin issues of superannuation of large number of employees on one hand, and growth of business and branch network on the other, UCO Bank has been consistently recruiting employees at all levels for the last three years. During FY13 itself, 1874 officers in different levels and 592 clerks were recruited. Thereafter too, Bank has issued appointment letters to 1000 Probationary Officers and 1000 clerks. The Bank also conducts round-the-year trainings and workshops to ensure all-round development and grooming of officers as well as new recruits.
From a shareholder point-of-view, how would you assess growth at UCO’s core metrics in FY’13?
Despite the difficult environment prevailing, with the help of sound financial management, UCO Bank’s Net Worth grew by 12.15% y-o-y to touch Rs 8,869.17 crore. The Bank’s Book Value per Share improved from Rs 94.72 in FY12 to Rs 97.19 in FY13.
Based on all the strategic planning you described, and hard work from the UCO team, how will you assess the anticipated performance in FY’14?
UCO Bank is set to become one of the prominent turn-around stories in the banking sector, with FY14 performance expected to be much better than the preceding year.