File photo of cash deposits in a bank. (Photo Courtesy: IndiaSpend)

Top 50 Bad Loan Accounts Constitute Up To 65% Of UCO Bank’s Total Bad Loans

Government-owned lender UCO Bank expects to return to profitability in the second half of the next financial year after it reported a net loss for the second straight year.

The Reserve Bank of India initiated prompt corrective action on the bank citing high bad loans and negative return on assets, the lender informed the stock exchanges on Friday.

The top 50 bad loan accounts constitute almost 60-65 percent of the bank’s total net non-performing assets, RK Takkar, managing director and chief executive officer of UCO Bank, told BloombergQuint in a phone interview .

With sectors such as steel, power, infrastructure and textiles continuing to remain under stress, the gross non-performing assets (NPAs) or bad loans of the bank grew to 17.12 percent of gross advances at the end of 2016-17. Net loss widened to Rs 588.19 crore in January-March from Rs 437.09 crore reported in the previous quarter. For the financial year 2016-17, the bank reported a net loss of Rs 1,850.70 crore versus Rs 2,799 crore in the last financial year.

No doubt, the steel sector is doing better, but most of the big corporate accounts like Bhushan Steel are not even able to break even as their debt is too high and for them to come out of NPAs, a lot of haircuts are required. Talks of new promoters taking over have not materialised. So it has not helped banks. These accounts are not out of problems yet.
RK Takkar, MD And CEO, UCO Bank

The government-owned lender received Rs 600 crore from the sale of bad loans to asset reconstruction companies (ARCs) during the January-March quarter. Takkar estimates that the bank took a 55-60 percent haircut on these loans.

The bank, in any case, has started to go slow on branch expansion and will now need to have a strategy in place for NPA resolution. The lender started branch rationalisation in financial year 2016-17 and brought down the number of zonal offices from 50 to 42 and merged 14 branches. Thakkar said the bank will continue its efforts to control expenses and lower manpower and rent costs.

When asked if the bank had completely provided for the divergence in asset quality classification for bad loans with the RBI, Takkar said the lender had provided for all that was required by the central bank under the asset quality review (AQR) last year and the divergence that remains now is “nominal”.

Shares of UCO Bank fell as much as 6.5 percent on the BSE on Monday, the most in six months, compared to a 0.46 percent gain in the benchmark index.