Liquidity pressures continue to persist in light of the RBI?s measures intended to protect a falling rupee. However,

Arun Kaul, CMD of UCO Bank, in an interview with Mithun Dasgupta, says the bank has been able to manage its cost of funds so far and may not hike base rate. Excerpts:

Are you facing pressure on liquidity front in light of RBI?s recent measures to protect the rupee?

You see, liquidity in the system has certainly gone down. But we are quite comfortable. One of the major factors is our continuous focus on acquiring low-cost Casa deposits which is now around 35% of domestic deposits. These are stable funds that are all the time available. Besides, credit growth has been relatively slow.

Is there any possibility of base rate going up? Private lenders have increased their base rates?

It will depend on how the cost of funds shape up in the future. We are continuously monitoring it. If cost of fund goes up, we may have to pass it on. We have to keep in mind what competitors are doing.

But the cost of funds for some lenders has already shot up?

All these measures (taken by RBI) are supposed to be short-term and expected to be rolled back after the situation improves. For the time being, the cost of fund has not really gone up (for us). We have a mix of funds ? some long-term, some medium term and other short-term funds ? which is not a very large percentage. Again cost of funds also depends on what proportion of retail deposits we have. We have substantial retail deposits, which are stable and less costly compared with very volatile and high-cost bulk deposits. At present, our bulk deposit is less than 10% and, therefore, we have been able to manage our cost of funds quite well. In fact our cost to income ratio as on June 2013 registered sharp a drop to 30.75% from 38.85% a year ago.

What is the bulk deposit ratio right now and what are you targetting?

Bulk deposit constituted about 50-60% three years back. Today, it should be less than 10% of the total deposits of the bank. We are trying our level best to reduce it further, because it is still possible. It will depend on so many factors. It will depend on liquidity of the market, the credit growth and demand for money. But attempt on our part will be to keep it as low as possible.

What is your expectation on business growth for this fiscal?

We expect our business growth to be in line with RBI?s projection for the banking system which is 13-14% growth in both deposits and credits. As at the end of last fiscal, our deposits stood at R1.73 lakh crore and advances stood at R1.32 lakh crore.

On asset front, how do you plan to grow lending business in FY14?

We would like to grow with low-risk assets. We are very cautious on any lending, but we will certainly be more selective in corporate lending, focusing only on highly rated corporates. In June 2012, our large corporate credit constituted about 60% of total portfolio. In June 2013, it came down to about 50%.

What is the asset quality situation now and how do you plan to tackle rising bad debts going forward?

If you notice, the rise in NPAs was lower in Q1 of FY14 compared with the previous three quarters. We are trying to improve our recovery and upgradation to catch up with slippages. If they match, at least there would be no incremental growth in gross NPAs, and this is what we are trying to do. I am hopeful in the next quarter (Q2), the upgradation and recovery figures will be more than the previous quarters. I would like to believe we have entered the phase where the major cleaning operations have been done. So, we may not see very large slippages in the future.

What is your outlook on restructuring?

Our restructured loan book stands at R9,717 crore as on June 30, 2013, in which discoms alone constitute R5,900 crore. Infrastructure, steel and aviation sectors are the other major contributors, together amounting to R2,700 crore.

Are you cautious on lending to infrastructure, power, aviation and steel? Have you stopped lending to those sectors?

We are generally discouraging further exposure to these sectors unless the borrowers are highly rated entities.