UCO to explore ARC, NARC route to recover cash from Srei Group

BL Kolkata Bureau | | Updated on: Aug 05, 2022

UCO Bank’s net interest income grew by 13 per cent at ₹1,649 crore

UCO Bank may explore the possibility of moving to an asset reconstruction company (ARC), including the government-backed bad loan aggregator National Asset Reconstruction Company Ltd, for exposure in Srei group entities.

According to Soma Sankara Prasad, MD & CEO, UCO Bank, if an ARC is interested in Srei, then banks could get their money upfront, instead of having to wait for the resolution process to be complete.

“We have the joint lenders meeting this coming Monday and we will check with other lenders in the consortium what they think about this [going to an ARC]. This is one option that we can explore. If any of the ARC is interested in Srei, then we can get cash upfront immediately,” said Prasad while addressing a virtual press conference post announcing the quarterly results on Friday.

The Kolkata Bench of NCLT had, on October 8, given its approval to start insolvency proceedings against the Srei group companies, including Srei Equipment Finance and Srei Infrastructure Finance.

The Reserve Bank of India-appointed administrator has admitted claims of around ₹31,868 crore of the total claims of around ₹34,223 crore from financial creditors to Srei Equipment Finance Ltd (SEFL). The administrator has also admitted claims to the tune of ₹257 crore from financial creditors to Srei Infrastructure Finance.

It is to be noted that the lenders to the two insolvent Srei firms had recently extended the deadline for submitting resolution plans by 10 days to August 10, following request from three of the prospective bidders. The deadline earlier was July 30. This is the third time that the deadline has been extended.

Big corporates, including Vedanta and Jindal Power, and asset reconstruction companies such as Assets Care and Reconstruction Enterprise, JM Financial Asset Reconstruction Company and Asset Reconstruction Company (India) (ARCIL), are some of the names that feature in the provisional list of eligible prospective resolution applicants for the Srei Group companies.

According to Prasad, if there is no further extension in timeline and bids are submitted, then it may take anywhere around 3-4 months for the process of resolution to get complete.

Q1FY23

Riding on the back of higher interest income, UCO Bank registered 22 per cent rise in net profit at ₹124 crore for the quarter ended June 30, 2022, against ₹102 crore in the same period last year.

Net interest income grew by 13 per cent at ₹1,649 crore during the quarter under review against ₹1,460 crore same period last year.

The other income took a hit as it took a mark to market provision of ₹653 crore on account of treasury loss during the quarter under consideration. The bank had taken a MTM provisioning of close to ₹216 crore during the fourth quarter of last financial year (Q4 FY22).

Other income was down at (₹54 crore) against ₹857 crore same period last year. Operating profit was down by 63 per cent at ₹440 crore compared with ₹1,173 crore last year.

According to Soma Sankara Prasad, MD & CEO, UCO Bank, the steep decline in other income and operating profit was primarily on the back of the MTM provisioning on account of treasury loss. However, moving forward, there might not be further need for any provisioning and the bank expects some write back happening.

“The repo rate increase is front loaded and I feel the yields have peaked and we expect some moderation on the yields front. So we are not expecting any further requirement for MTM provisioning infact there could be some write back in the July-September quarter of current fiscal,” Prasad said while addressing a virtual press conference post announcing the quarterly results on Friday.

The bank has witnessed an improvement in asset quality and has seen a decline in both gross and net non-performing assets (NPA). Gross NPA has come down to 7.42 per cent (9.37 per cent) while net NPA came down to 2.49 per cent (3.85 per cent).

Total provisions came down by nearly 76 per cent at Rs 247 crore (Rs 1014 crore) during the quarter under review. UCO Bank had restructured loans to the tune of Rs 3373 crore and there was some slight stress in around 25 per cent of the restructured book, he said.

“Nearly 25 per cent or close to Rs 925 crore worth restructured loans are under some stress where in one or two instalments are due but they have not slipped into NPA. We are regularly following up, monitoring and hope to recover these dues,” he said.

The bank’s net profit margin (NPM) improved to 3.26 per cent (2.30 per cent).  

UCO Bank expects 12-13 per cent growth in credit during the current fiscal backed by a steady demand from both corporate and retail sectors.

Though the bank has board approval for raising fresh capital to the tune of around ₹1,000 crore, it is comfortably capitalised at a capital adequacy ratio of 14.13 per cent and may not require to raise capital during the current fiscal, he said.

The bank’s scrip closed at ₹11.83, down by 2.47 per cent on the BSE on Friday.

Published on August 05, 2022
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