After coming out of prompt corrective action (PCA) regulatory mechanism in August 2021, State-owned UCO Bank turned the corner in its first year by reporting profits of ₹938 crore in FY22 and is now targeting profits of ₹2,500 crore in FY24.
Markets have recongised the turn around story as UCO Bank’s market capitilisation has nearly tripled in less than two years.
While talking to businessline, Managing Director and CEO of UCO Bank Soma Sankara Prasad also spoke about their plans to raise funds through tier one bonds and possible equity dilution depending on market conditions.
How did UCO Bank manage to turn things around in just a little over a year?
After we came out of PCA, our focus was on growth through expansion. So starting from January 2022, the emphasis has been on branch expansion by opening 200 additional branches in new growth areas across the country.
Secondly, we decided to focus on profitability. Any bank gets in trouble when it does not make profits – my emphasis was always on that volumes don’t matter – ultimately it is the profitability that matters.
In addition, the bank’s entire business growth has been good with factors including improved advances, slippages in non-performing assets (NPAs) have drastically come down – for three quarters they came to ₹1500 crore. Moreover, the recovery and upgradation were double of our slippages.
How do you plan to address the ongoing issues, such as low current account and savings account (CASA) deposits, where the bank continues to perform below industry average, the expenses ratio and net interest margin (NIM)?
Our bank’s CASA is around 38 per cent compared to the general banking average which is around 45-46 per cent. We are conscious of the fact that our CASA is much lower compared to the other banks and that a lower CASA also has an impact on the cost of funds. We are working towards improving the CASA, which takes some time to build up.
Secondly our NIM was impacted due to the high NPA ratio, which has gradually started to come down. Currently, we are at 2.99 per cent in the December quarter. Furthermore, to improve our NIM- we need to focus on certain products such as personal loans- where the NIM is much higher.
In regards to our cost to income ratio being high, almost around 50 per cent due to high IT spend, branch expansion, employee costs which comprise of the salaries and a large base of pensionaries. Our employee cost will eventually come down, as the average age of UCO Bank is under 35 years of age, with a young workforce we will be able to cut down on costs.
Are there any plans to tap markets anytime soon?
We are looking to raise ₹500 crore from tier one bonds before the end of March. Furthermore, we already have board authority to raise ₹1000 crore through equity; this approval is valid until March 24. We want to raise money to test the waters and gauge the reaction, and to build the equity, too.
As we have an entire year ahead of us, we are not in a rush and will dilute at the appropriate valuation. We don’t require growth money as we have adequate capital. Currently, government holds about 95 per cent share in the bank.
Are you in line with the plan of opening the 200 branches by March 31? Are there plans to open more in the coming year?
We had set the target to open 200 branches by March 31, and are well positioned to achieve the same. Presently, our footprint in the south is 324 branches.
Of the total new branches, we will have 27 in the south. Overall, we have 3,120 branches, with two in the international market. However, after opening the 200 branches, we will take a pause and will do an internal check to see if we can merger or close perineal loss-making branches instead of opening more.
Is there a budget that has been set aside to invest in digitalisation?
We are investing heavily in digitalisation to secure more data and are at par with the competition. Additionally, we have also tied up with several fintech companies that offer new models and technology while we have the customer base, to enhance our operations.
Through the mobile banking app, we offer a range of services including the entire suite of wealth management services. In fact our mobile banking app is rated 4.5 to 4.7, which is one of the highest rated mobile banking apps in the banking industry. We try to bring more products and recently we launched a new product- UPI Payments through feature phones.
Going forward, what are the major challenges that you foresee?
One of the biggest challenges is to ensure proper due diligence is maintained when doing corporate loans to avoid slippages in large corporate loans.
Currently, my retail agriculture and MSME (RAM) portfolio v/s corporate portfolio is in the ratio of 60:40, and we want to maintain that level because in the RAM portfolio, the margins are better. Plus, the chances of a large-scale default are less.
However, this year the corporate portfolio has grown by 30 per cent, much faster than the RAM, which has grown by 15-16 per cent. So, we want to actually bring down a little bit of balance to maintain the 60:40 ratio by growing the RAM portfolio faster.
What segments of the corporate market do you see the growth coming from?
One is the infrastructure component, particularly the road sector. Similarly, we have seen growth in NBFCs, renewable energy, cement and steel. In retail, we have seen good growth in home loan and car loan, and going forward as well, we see significant growth in housing.