For UCO Bank, post-demonetisation cash inflows help offset drop in Iran oil payments

The effect of demonetisation has been mixed and the jury is still out on whether there will be any short-term benefits. But one bank has certainly seen a windfall of sorts — demonetisation seems to have helped UCO Bank put the crisis, caused by the stoppage of oil payments for imports from Iran, behind it.

UCO Bank was the designated bank to route payments to Iran for imports by Indian oil companies at a time when there were global sanctions against that country. This facility provided the bank with a considerable float and enabled it to earn a good sum as interest.

At one time, the outstanding payment to be made was about ₹25,000 crore but this started drying up when sanctions were lifted and Iran was allowed to export oil through other countries and take payments from other banks.

“We have now only about ₹1,800 crore in this account against a float of ₹20,000 crore in 2015,” said RK Takkar, Managing Director and CEO.

“Obviously, the drop in all oil payments for imports from Iran by India has affected our cost of funds. This has been partly offset by the cash inflow post-demonetisation.

“However, funds under the Rupee Payment Mechanism are getting depleted and the entire amount will be liquidated by March 31,” Takkar told BusinessLine .

Takkar, who was in Kochi for an official function, said that the amounts collected after demonetisation were mainly through savings accounts and are slowly drying out.

“A portion of this amount has already gone back to the depositors and we are expecting 25 per cent of the amount collected to remain in the bank,” he added.

Asked whether there was any chance of revival in credit growth this fiscal, he said the main concern today is poor credit off-take, forcing the bank to prune the credit target to 4-5 per cent against the planned 8 per cent.

“We are almost at the fag end of this fiscal and things will improve after the next two quarters. The bank is looking at a 6-8 per cent credit growth in the next fiscal,” he said, adding that the focus is now largely on small trade business loans as well as increasing other income to spur growth.

According to him, the mounting non-performing assets (NPAs), which stood at 16.5 per cent as on December 31, 2016, are a major concern. Sectors including iron and steel, infrastructure, power and textiles account for a major chunk of the NPA and the focus is now on reducing it either through cash recovery or upgradation of loans.

“We are trying to reduce the losses and the immediate plan is to work out some resolution through Strategic Debt Restructuring, including deep restructuring, the S4A route, or engaging retired staff for recovering accounts,” he said.

COMMENT NOW