For the quarter ended December 2013 UCO Bank, once thought of as a ‘weak’ bank, stunned the industry by reporting a four-fold increase in net profits (at Rs 400 crore), compared with the same quarter of the previous year.
A large part of the credit should go to the bank’s seizing of the ‘Iran opportunity’ that came in the wake of US-led sanctions against the West Asian Islamic republic. UCO Bank benefited from the huge float funds it got in the course of processing imports (of oil) from and exports to Iran. However, the bank appears to have taken many other measures too, to enhance profits.
The Iran business came to us much later, when the process of turnaround — conceptualisation, strategising, and execution — was started, which was immediately after I assumed charge in September 2010. You will appreciate that organisational turnaround is not dependent on one single factor nor does it happen overnight. There are various dimensions to UCO Bank’s turnaround.
First and foremost there was a need to change the way its people behaved across the board — from being reactive to proactive, hierarchical to collegial, inward looking to externally focused. Since the collective culture of an organisation is an aggregate of what is common to all of its group and individual mindsets, such a transformation entails changing the minds of hundreds or thousands of people.
The turnaround strategy was formulated keeping the aforesaid factors in mind. The objective was to transform the organisation into a customer-centric, profit-oriented, technology-driven, modern bank. Towards this end, some fundamental changes were ushered in areas such as business model — from bulk to retail-focused, organisational structure (for more efficient operations and manageable span of control), new market penetration, technology, etc, which had nothing to do with Iran.
How does the ‘rupee payment mechanism’ work?
Under the ‘rupee payment mechanism’ a few identified Iranian banks opened INR-vostro accounts with the UCO 'Treasury Branch' in Mumbai. Indian Oil importing companies settled 45 per cent of the amount payable to Iran in rupees to the credit of the Iranian bank accounts. The rest is to be paid later in euros or dollars when sanctions are lifted. For exports to Iran handled by Indian banks (including our branches), payments were made by debiting the Iranian bank accounts. For credits and debits in the rupee account of Iranian banks with UCO Bank, Iranian riyal cash flows of equivalent rupees were facilitated at the counters of the respective Iranian bank in Iran.
Even under the difficult conditions, our bank was able to settle substantial export (covering both physical and service exports) and import transactions related to Iran in Indian rupees amounting to billions of dollars. Such huge settlements through a rupee mechanism were unprecedented, conserving precious foreign exchange and bolstering the country’s balance of payment position.
Till date we have settled exports mounting to more than $5 billion and imports of crude oil amounting to more than $8 billion, all settled in Indian rupees. Over the past seven quarters, payments made by UCO Bank for Indian exports to Iran increased from Rs 570 crore in the first quarter of 2012-13 to Rs 7,723 crore in the three months ended December 2013. The principal benefit that accrued to the bank was access to the floating fund in the vostro accounts of Iranian banks maintained with our Treasury branch at Mumbai.
Your bank is said to have pioneered the concept of ‘space audit’ with good results. How much has it helped in profitability?
Cost optimisation has been one of our focus areas in the turnaround strategy. The idea of “space audit” emanated from that, as a major portion of the bank’s expenses went towards rentals and utility charges. We carried out a space audit of all our premises throughout the country — commercial and residential — to avoid under-utilisation or wastage of space. In the process, the bank effected major savings through optimum utilisation of expensive office space.
Simultaneously, the bank is saving substantially on transaction costs — by incurring only one-fourth the cost in the case of ATM transactions and only a small fraction in the case of online transactions vis-à-vis branch transaction and overheads by rapidly increasing ATM installations. Convincing customers about availing of e-banking and m-banking facilities has lead to a decrease in branch footfalls, which has enabled our bank to surrender space in bigger branches or to move out to smaller but newer premises at the time of lease renewal, while new branches are being started with 700 to 1000 sq ft space, inducing ATM enclosure — at a time when the cost of office space is shooting up, particularly in cities. In the process the bank is saving around Rs 100 crore annually on rental and overheads.
All these steps have helped reduce our cost to income ratio substantially — 34.43 per cent as in the quarter ending September 2013 from 41.78 per cent a year ago.
Increase in CASA, perhaps since Kaul became the CMD — just to take that as a reference point.
During the period when the country’s GDP was growing fast, i.e. during the first decade of 21st century, UCO Bank pursued a strategy of “bulk lending supported by bulk deposits” — a strategy that had many pitfalls. Business was being driven by HO and branches had gone of the radar and reckoning. There was very little thrust on branching out in centres with potential, there was a lack of urgency in customer acquisition, branch upkeep was practically non-existent and customer service was quite inadequate. With over-dependence on bulk business, which led to concentration of risks, the business model was unsustainable. One of the first decisions for effecting the bank’s turnaround was to overhaul the business model from bulk to retail banking, both on the asset and the liability sides. We decided to shed volatile and high-cost bulk deposits and build a low-cost stable fund base through a manifold increase in our CASA deposit. Towards this end, we started sustained customer acquisition drive across the country. This needed increasing the touch points — both physical and virtual — which we did.
How was the increase in CASA achieved given that every bank is chasing the same universe of customers for CASA?
In a large and thickly-populated country like India, branch outlets are the lifeline of banks. ‘Revitalising the branches’ was one of our top priorities. While opening new branches, the bank started looking at new addressable markets and new geographies. Thanks to this initiative, the bank’s branch network is going to touch around 3,000 in March 2014 by opening almost 900 branches in 4 years between March 2010 to March 2014, as against 433 in the preceding 15 years. From a position of 477 ATMs as in March 2010, the bank is on course to having 2,500 ATMs by March 2014.
To attract GenX customers the bank introduced three varieties of the personalised UCO Visa Debit Card — Gold, Platinum and Signature. Debit cards are also being issued to current account holders of proprietorship firms and to those having CC facility against FDR.
With a view to targeting the Millennial Generation with a multi-channel approach, the bank has also put in place modern e-Banking and m-Banking facilities.
Branches are being transformed into "sales and service outlets" from earlier "transaction-processing" outlets by transferring the routine jobs to back offices and allowing branch personnel to devote quality time to "customer relationship management". A lot of effort is going into improving the ambience and layout of branches for ensuring maximum customer comfort.
These initiatives have yielded results. The bank is acquiring around 2.50 lakh new customers each month, giving a huge boost to its core deposit growth. CASA percentage has jumped by 10 per cent to reach 34 per cent of domestic deposits.
How many new current accounts have been opened in the last, say, 3 years, and again, to what extent did your getting the Iran account help here?
About 1.07 lakh current accounts were opened during the last three financial years 2010-11, 2011-12, 2012-13, while around 34,000 current accounts have been opened in the first nine months of this fiscal. Of this, 706 exporters to Iran opened current accounts in different designated branches during FY2012-13, and another 476 current accounts in the nine months of the current fiscal.
Kindly tell us how UCO bank gave up large corporate accounts.
As already explained, the bank took a conscious decision to go slow in corporate credit. Instead, it shifted focus to the retail, MSME and agriculture sectors for new asset acquisition, apart from bill discounting under LCs, which is a short tenure portfolio and self-liquidating in nature.
Resultantly, during the last financial year 2012-13, corporate credit growth was negative (-4.65 per cent). During the current fiscal it has come down from Rs 67,801 crore as on March 31, 2013, to Rs 62,094 crore as on December 31, 2013, down by 8.41 per cent.
At the same time, we have achieved continuous growth in retail banking business and bill discounting under LCs.
Comment on NPA levels and efforts to control NPAs
The slowdown of India’s economy coincided with the regulatory mandate to adopt system-driven identification of bad loans by September 2011. In case of our bank, the system tracking of asset health threw up a large number of legacy NPAs, which had so far gone undetected and unreported. In the intervening period (between actual slippage and detection) many of them had turned hard-core NPAs.
But the bank none-the-less declared its NPAs even at the cost of net profits. During the last financial year (FY2012-13) alone the bank declared fresh NPAs of Rs 5,162 crore. By declaring them as NPAs, we could start recovery proceedings against them as otherwise the bank’s money would have remained stuck without earning anything.
The bank went all out to tackle the issue of bad loans by initiating various measures such as ABC analysis of NPA portfolio for minimising NPAs, particularly in the case of freshly generated NPAs where the immediate scope of recovery is there, extending the hand-holding approach towards viable units by way of restructuring or rescheduling of loans to help them tide over the slowdown and prompt action under SARFAESI Act in case of non-viable NPA accounts, followed by taking possession and auction sale of the properties.