As per RBI’s revised prompt corrective action framework for banks, UCO Bank, which has posted net losses for two consecutive years, is now under ‘Risk Threshold 1’ of the PCA matrix, where it will have restrictions on branch expansion plans, dividend distribution and staff expansion, among others.
With the Reserve Bank of India initiating a prompt corrective action (PCA) against UCO Bank on the back of a whopping bad loan and negative return on assets, the public sector bank is in search of an appropriate business model. It looks at adopting proper strategies for quickly resolving non-performing assets issues and loan growth in low-risk areas. Talking to FE, MD & CEO Ravi Krishan Takkar said the turnaround plan for the bank may be prepared within this month after “mutual discussions” with SBI Caps. After finalising this plan, the bank will have “proper strategies” to carry out business operations in the regulated environment. “We have to formulate strategies for NPA resolution, and on the business model. We have to keep on focussing on how to go about risk mitigation,” Takkar said.
“Under PCA, there is no restriction on lending for us. But we have to modify our strategy to determine under which areas we have to lend and grow under low-risk assets,” he told FE in an interview. “We will not like to venture into higher risk areas. We will not lend below a certain threshold of credit ratings. Now we are not focussing on corporate, the focus of our bank will always remain on MSME and retail,” he said.
Significantly, the Centre has given SBI Caps the mandate to design detailed bank-wise action plans for weak banks, based on which tripartite agreements between the government, bank managements and employee unions will be signed, committing themselves towards certain milestones. As per the revised prompt corrective action framework for banks, UCO Bank, which has posted net losses for two consecutive years, is now under “Risk Threshold 1” of the PCA matrix, where it will have restrictions on branch expansion plans, dividend distribution and staff expansion, among others. It reported negative returns on assets (RoAs) for two consecutive years, with net non-performing advances (NNPAs) ratio standing at 8.94% as on March 31.
At 17.12% gross NPA ratio for the last fiscal, the lender has one of the highest NPA ratios in the domestic banking industry. While the central bank has initiated the regulatory actions against UCO Bank, a majority of bank officials at the branch level are confused about how to carry on with day-to-day banking operations under the restricted environment. “Employees at the branch level are confused about the restrictions. Especially, younger employees are very worried over it because they have to play longer innings in this bank,” said Partha Chanda, secretary, All India UCO Bank Employees Federation.
“We, at the union level, have started our work. We are vising different branches of various regions, telling our staffs to be more alert and be focus on recovery of bad loans,” Chanda said. Informed sources from the bank said the management would be unable to give appropriate directions to the employees under this different regulatory situation unless the turnaround plan is finalised after discussions with SBI Caps. “SBI Caps has not yet informed the bank on the date for the meeting with the management to draw up the crucial plan.
Earlier, it collected huge data from the bank on different parameters for the last few years,” they said. Asked to comment on the confusion prevailing among the employees, Takkar said, “There is nothing to worry about. PCA does not mean we are not doing business…we are doing normal business in normal way only. We will only have proper strategies.” On the strategies towards bringing down the whopping NPAs, he said the bank’s prime concern was how to have a proper NPA resolutions and recovery of bad loans.
“Last fiscal, the bank sold around `12,000 crore bad loans to ARCs (asset reconstruction companies). The number this year will depend on market conditions. We are trying to bring our gross NPA ratio down to below 15% by end of this fiscal.” Asked when the bank is expected to return to profitability, Takkar said, “It will depend…let us see how the things are moving.” The bank last week reported a net loss of Rs 588.19 crore for Q4 ended March 31, 2017. At the end of the March quarter last fiscal, its gross NPAs in absolute term rose close to 8% year-on-year to Rs 22540.95 crore.