UCO Bank reported yet another dismal quarter with a net loss of ₹440.57 crore in April-June, as asset quality continues to deteriorate even though losses have narrowed on a quarterly basis. Gross NPAs have gone up to 17.2 per cent of advance and touched ₹22,000 crore in Q1. Similar is the picture for net NPAs. Speaking to BTVI , MD and CEO Ravi Krishan Takkar expects the industrial scenario to improve from the third quarter and NPA situation to improve. Monetary transmission will also improve as banks lower their cost of funds, he says.

Can you take through the highlights, especially the NPA situation?

During Q1, there has been a rise in loan delinquency and there have been fresh slippages of ₹3,116 crore. But we did some good recovery of ₹1,027 crore, which has led to net accretion of about ₹1,600 crore. So we have reached Gross NPA level of 17.19 per cent, while Net NPA was 10.04 per cent. No doubt, the slippages have happened in the first quarter. Compared with the NPA situation in January-March quarter, we have been able to bring them down drastically. In the March quarter, the slippages were ₹7,800 crore. The stress continues and we might expect some more slippages. But it won’t be much.

In the July-September quarter, the slippage is expected to come down further. One of the reasons for the NPA percentage going up is that the denominator factor — our loan advances have been coming down. We are keeping quite a comfortable provisioning coverage ratio (PCR) of 54 per cent.

What is the quantum of the SMA-2 or the Special Mention Account (SMA-2), where principal or interest payment is overdue for 61-90 days?

The accounts in our watch-list are around ₹50,000. In the current quarter, we expect fresh slippages of around ₹1,500-1,600 crore.

What’s the NPA slippage guidance for FY17?

It is difficult to comment on the NPA situation for the entire FY17 now. But we expect the current stress in the industry to come down from the third quarter following the measures the government has been taking. If we see some positive things happening in the third quarter, the position should start improving and we could see a downward trend in the NPAs from the fourth quarter.

In the previous quarter, you had projected that the NPA slippages could be ₹5,500 crore in FY17. If the slippages add up to about ₹5,000 crore in the first two quarters, how will you meet your target for the full of FY17?

We are expecting substantial improvement in the NPA situation from the third quarter. It is not just the slippages. What is important is the NPA recovery resolution. In quite a few accounts, we are having discussions with borrowers. We are expecting a substantial amount to be upgraded (as standard assets). That will enable us to control our overall NPAs.

While NPA recovery and upgradation is an important step, how many cases have been admitted under the Scheme for Sustainable Structuring of Stressed Assets (S4A)?

Nothing has been finalised, although discussions are going on in some cases.

There has been a lot of talk about the transmission on lower lending rate from base rate to Marginal Cost of Funds based Lending Rate (MCLR). What changes have you done? What is the outlook for transmission to lower lending rates?

The decline in MCLR has contributed to better transmission. But we are waiting for our cost of funds to come down. Today, for most banks, the MCLR for three months is 9.3-9.4 per cent. Transmission cannot happen unless our cost of funds comes down. Slowly, we expect it in the next 3-6 months. And the current gap between the RBI rate cuts and bank lending rate cuts will further narrow down.

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