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Monday, November 23, 1998

Uco Bank hits panic-button, seeks bailout 

Tamal Bandyopadhyay  
Mumbai, Nov 22: The state-run Uco Bank has moved the finance ministry with a proposal to postpone the bipartite wage settlement, downsize staff strength through introduction of a voluntary retirement scheme (VRS) and shift its treasury operations from Calcutta to Mumbai.

Admitting that its strategic revival plan has virtually failed, the bank management task week sent an SOS to special secretary, ministry of finance (banking division), CM Vasudev, seeking the ministry's approval for setting up an asset reconstruction company, introducing VRS to slash flab and the release of a fresh tranche of recapitalisation fund to raise its capital adequacy ratio.

The move is likely to spark off a political controversy in Calcutta, which is yet to recover from State Bank's move to shift its foreign exchange operations to Mumbai. Trade unions are likely to oppose any move to defer the seventh bipartite wage settlement in Uco. The Reserve Bank of India reportedly held an emergency meeting last week following Ucomanagement's SOS to the finance ministry. However, RBI sources refused to comment on the issue.

According to bank sources in Calcutta, the board of directors recently reviewed the performance as on September 30 vis-a-vis the revival plan parameters and "expressed its deep concern and anxiety over the financial position of the bank". Uco chairman-cum-managing director Sharda Singh has identified four major areas of concern: work culture, excess staff coupled with low productivity, high level of non-performing assets and adverse implications of a low capital adequacy.

In March 1998, Uco's net NPA was pegged at 11.14 per cent of its advances, while capital adequacy stood at 9.07 per cent. Since then, the bank's capital adequacy ratio has been eroded and is likely to dip below the stipulated 8 per cent in fiscal 1999.

Uco, which registered an operating profit of Rs 15 crore last year, is not expected to net a profit in the current fiscal. The bank is planning to approach the centre for recapitalisationfunds to jack up its CAR as "there is no feasible alternative". "Essential lending should not stop in the meantime though the capital adequacy would fall below acceptable level," an internal Uco note said.

According to the Uco board, productivity level is abysmally low because of a "poor work culture". The management has called for administrative firmness (which includes transfer of employees and redefination of roles), review of organisational structure, closure and merger of loss-making branches and introduction of the concept of accountability for non-performance.

The Uco Bank also wants the union finance ministry to consider a shift of treasury functions to Mumbai for effective management.

The present productivity level of Uco Bank staff is Rs 57 lakh against state-run banks' average productivity level of Rs 75.56 lakh. The management wants to introduce a VRS scheme with the centre's direct help or supported by long-term bonds.

It also wants "postponement of payment of increase in wages/salariesunder negotiation by making it payable from (contingent to) bank's future profits when earned".

On containing mounting NPAs, the management's suggestion is to restrict credit disbursement above a threshhold level to about 200 branches manned by specialised staff and explore possibilities of setting up an ARC.

BoB sets terms to purchase Uco Bank assets

Bank of Baroda (BoB) has decided to purchase assets of Uco Bank's London office only after Uco employees' service contracts are terminated.

BoB chief K Kannan recently wrote to Uco chairman Sharda Singh stating that the bank will carry a residual risk and will be exposed to claim by the employees of Uco Bank for transfer of their employment.

Hence, BoB will seek an express-written indemnity from Uco in respect of any employee claims. This has been done following the bank's employment solicitors' advice. BoB has also decided against holding any dialogue with Banking Insurance & Finance Union (Bifu) in London on this issue.

The BoB isconsidering the following modalities on buying Uco Bank's assets in London.

First, in regard to standard assets, the borrowers may be advised to approach bank of their choice for transfer of their accounts by liquidating Uco Bank's dues.

Second, other assets may be transferred to Uco Bank's Indian books, and, third, the investment portfolio can be transferred to any of branches outside the UK.

The BoB move will take care of the Bifu stance that the transaction involves a transfer to which Transfer of Undertaking (Protection of Employment) Regulations 1991 apply with the effect that their employment contracts are taken on by BoB.

Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.


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