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Informist, Thursday, Oct. 24, 2024

 

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--UCO Bank MD Kumar: Would ideally like CASA ratio to be 40% vs 38% currently
--UCO Bank MD Kumar: Aim to improve CD ratio by 300 bps to 75% by March-end
--CONTEXT: Comments by UCO Bank MD Ashwani Kumar in interview to Informist
--UCO Bank MD: Don't see adverse impact once RBI's new LCR norms kick in
--UCO Bank MD Kumar: Will hold both onshore, offshore roadshows for QIP
 

 

By Priyasmita Dutta and Sagar Sen

 

NEW DELHI – UCO Bank has set an internal target of improving its credit-deposit ratio by over 300 basis points to 75% by the end of the current fiscal, according to the state-owned bank's Managing Director and Chief Executive Officer Ashwani Kumar. "Our target is the end of fiscal, but if not the end of fiscal, at least by June," Kumar told Informist in an interview.

 

Improving the credit-deposit ratio by one percentage point every quarter will help the bank meet the target by June. At the end of September, the bank's credit-deposit ratio was 71.77%.

 

Kumar's comments on improving the credit-deposit ratio come at a time when both the Reserve Bank of India and the finance ministry have raised concerns about growth in deposits lagging advances. Though UCO Bank is doing better than its peers, Kumar said with 8-10% growth in deposits and 12-14% growth in advances, UCO Bank can meet the 75% target. In the September quarter, UCO's advances grew 18% on year while deposits grew 11%.

 

"Though we have achieved 18% in this quarter, our endeavour will be if we get good business opportunity in the corporate segment where our profitability is there, and my margins are protected, then we may exceed our 14% (credit) growth target (for FY25)," Kumar, a career banker, said. The intent is to balance the growth in retail, agriculture, MSME and corporate sector lending, said.

 

Kumar said the bank has devised strategies like revamping salary account products and mobile application to mobilise deposits. "Earlier, our salary saving account was not competitive. So that has given us good mileage by entering into memorandum of understanding with 3-4 public sector undertakings for opening their salary accounts."

 

"These are the initiatives we have taken, and I believe with these initiatives we will be able to maintain our CASA in this (current) range and cost of deposit also in this (current) range." The state-owned lender's current account savings account ratio was 38.28% at the end of September, lower than 38.62% a quarter ago. Cost of deposits of the bank was at 4.88% in Jul-Sept, marginally higher than 4.79% a quarter ago.

 

The Kolkata-based bank posted a robust 50% on year growth in net profit to INR 6.03 billion in Jul-Sept on the back strong growth in net interest income and an increase in net interest margin. On Wednesday, shares of the bank closed at INR 43.54 on the National Stock Exchange, down 0.5% from the previous close.

 

Below are edited excerpts of the interview where Kumar shed light on the potential impact of RBI's proposed liquidity coverage ratio norms, the lender's fund-raising plans, and offshore operations:

 

Q. In the September quarter, your cost of deposits was 4.88%. By the end of the year, what is your outlook on it, and what are the steps you will take to improve it?

A. If we look at our cost of deposit, in December 2023 we had a peak of 4.91%. And thereafter, it had started to decline, and then it was up slightly from 4.79% to 4.88% at the end of September. And I believe that by the year-end, our cost of deposit should be in this range. It should not go up from here on.

 

On the part about managing it, we have focussed on CASA deposits. Our CASA is moving around 38% throughout the last four to five quarters, which is not quite of high pressure on the interest rate, but it has not come down. We have been able to maintain CASA and to garner CASA we have devised various strategies.

 

We have started opening accounts over apps by reaching out to customers at their workplace. We have revamped our salary products, bundling insurance, extra concessions for home loan customers, lockers and vehicle loans and so forth. A salary saving account has been made attractive, as competitive in the market and it can be. Earlier, our salary saving account was not competitive. So that has given us good mileage by entering into memorandum of understanding with 3-4 public sector undertakings for opening their salary accounts. And for current salary accounts, we have also launched two new variants; business and business plus, and that is also bundled with certain incentives. We have a corporate mobile banking app, which no other bank has.

 

These are some initiatives we have taken, and I believe with these initiatives we will be able to maintain our CASA in this (current levels) range and the cost of deposit also in this (current levels) range.

 

Q. What would be the most ideal CASA ratio for you and, by the end of the year, where would you like to see it?

A. The ideal should be more than 40%. But given the competition and the scenario wherein the deposit interest rates are high, I expect that we should be able to maintain 38% which we have been maintaining throughout. Ideally, I would like to cross 40% maybe in the next year with a little bit of extra effort.

 

Q. Is there scope for UCO Bank to improve the credit-deposit ratio?

A. Our CD ratio is around 71.77%. Our CD ratio in the year before was 67%. We have already improved our CD ratio by 452 basis points in one year. Our target is to take the CD ratio to 75% by the end of fiscal, but if not end of fiscal, at least maybe by June. If we are able to maintain and improve it by one percentage point every quarter, by June we should be at 75%, but our internal targeting is that by March we should have 75? ratio. With 8-10?posit growth and 12-14?vance growth, we should cross 75% credit-deposit ratio.

 

Though we have achieved 18% (credit growth) in this quarter, our endeavour will be if we get good business opportunity in the corporate segment where our profitability is there, my margins are protected, then we may exceed our 14% growth target. But our intent is to balance our growth in retail, agri, MSME and corporate, which in this quarter we have surpassed the targets of. But if the opportunities like we got in this quarter, if we continue to get the opportunities in the next quarter, we may again overachieve.

 

Q. The Reserve Bank of India came out with draft LCR norms. Do you think that these norms will push banks to go slow on credit to set aside large liquidity buffers?

A. At UCO Bank, our LCR has been above the minimum required of 100% for years. Currently, we are also maintaining 131% of LCR. So, if there are changes, given the circumstances, I think 10 to 15 basis points will have an impact on banks. So, even in that scenario, I believe that our LCR should be in the range of 120%, still comfortably higher than the required level. And I don't think that it will have any impact on our ability to lend or grow. Our focus is on CASA and retail term deposit where runoff factor is very low as against the bulk deposit.

 

Q. Can you shed some light on the roadshows for capital raising that you will begin soon?

A. It will be both onshore and offshore. Now we have already completed the process of onboarding our merchant bankers and legal counsel. After the festival season we will be going around onshore and offshore to meet our investors. We are planning (to raise capital) in this quarter provided all conditions are good, and market conditions remain good.

 

Q. You are not in need of this capital. How do you intend to utilise this?

A. We don't need capital, we already have CRAR of 16.84%. We are going (to raise capital) for the purpose of reducing our government of India holdings. We will definitely invest in loans and advances in our credit portfolio, which is the only lucrative area, instead of going for investment. Because high yielding investment opportunities are not there.

 

Q. Which are the sectors where you are seeing stress?

A. Our slippage in the retail segment was INR 1.32 billion. It is 0.25% of our retail portfolio in this quarter. Similarly, MSME was around INR 190 billion, it is again 0.5% of our SME portfolio. And agriculture was on the higher side because of the seasonality. In September, agricultural slippages were on the higher side. In the corporate sector, we had one big account this quarter. It was an aberration. Earlier, our corporate slippages were in the range of INR 1.00 billion only.

 

Q. UCO Bank has been one of the pioneers in handling offshore transactions. Besides Sri Lanka, are there any other countries that are in the pipeline with whom you are linking UPI?

A. Currently, we are doing with Bhutan, Mauritius, Nepal, Singapore, Sri Lanka, and United Arab Emirates.

 

Q. In May, you mentioned getting the go-ahead from NPCI for CBDC pilot...

A. Our target is December (to foray into retail). The pilot is already going on.  End

 

Edited by Ashish Shirke

 

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