Kolkata-based UCO Bank is planning to raise Rs 3,000 crore this fiscal and turn profitable by FY19. The turnaround plan will be finalised within a week.
According to sources, the Reserve Bank of India (RBI)’s directive to UCO Bank to take prompt corrective action (PCA) could impact the lender’s fund-raising plans.
PCA means strictures on lending and branch expansion, change in management and reduction in assets in order to improve the financial health of the bank.
Also, rating agency ICRA has downgraded the bank's tier-II bonds worth Rs 1,300 crore due to weak financial performance in the past year. The agency believes that losses in the last two fiscals and high levels of non-performing assets (NPAs) will keep the bank’s capitalisation levels and solvency profile weak going forward.
Fund raising
According to Charan Singh, Executive Director, UCO Bank, the PSU lender will look to raise a part of this Rs 3,000 crore from Life Insurance Corporation of India (LIC), while it will also explore other fund-raising options like follow-on issue or QIP .
In FY17, LIC had pumped in a little over Rs 270 crore in the bank by way of preferential allotment of equity shares.
UCO Bank has already got approval from its board and shareholders to sell up to 75 crore equity shares. Accordingly, it plans to sell shares to raise Rs 3,000 crore of fresh capital.
“We will not go for rights issue as it will further raise the Government’s stake in the bank. We may look to raise fresh capital by approaching the LIC where we have some headroom. This apart, we are exploring other possible options,” he told reporters on the sidelines of the bank’s annual general meeting
UCO Bank needs capital not only to support credit growth but also to provide for non-performing assets (NPAs). The bank’s gross non-performing asset level (GNPA) stood at 17.12 per cent, while net NPA was 8.94 per cent in FY17. The bank had reported a net loss of Rs 1,851 crore last fiscal.
Turnaround plan
Meanwhile, the turnaround plan – that the bank is working on with SBI Caps – is likely to be finalised in the “next two-to-three days”.
The turnaround plan envisages branch rationalisation – merger of unprofitable branches or merging many branches in the same location, bringing down the number of zonal offices and so on.
Already 14-odd branches have been merged, Singh said, adding that the process was an “on-going one”.
In terms of credit growth, the bank is eyeing a modest 6-7 per cent in FY18, while the immediate focus would be bring down non-performing assets. “We should be profitable in FY19,” he said.