Chennai: Image-building is a difficult proposition for public sector units is a well-known fact. The mission is further compounded when it is a bank with its bottomline dipped in red for several years. Two years of being in black is not enough to have a positive public image, because many are still unaware of the change in the bank's fortunes.
Precisely this is the predicament UCO Bank chairman and managing director V P Shetty finds himself in. He is trying hard to change the public perception of his bank, though.
"All these years we were focussing on the bank's path to profitability. Now that has been achieved, we are looking at external communication," concurs UCO Bank general manger (treasure and international wing) B K Datta. As this fiscal happens to be the diamond jubilee year for UCO Bank, Shetty is taking full advantage of it by meeting the media across the country.
Sprucing up a bank's image is crucial. Shorn of any government support in the form of equity infusion, UCO Bank has to approach the market to mobilise resources to cater to the mid-segment clientele. In fact, the bank's advertisement expense had considerably gone up last year.
"We cannot tap the public with an accumulated loss of Rs 1,751 crore," Shetty says. "The loss has to be adjusted fast, and the adjustment has to come against capital since it will take years to write off the losses against profits. The government is seriously considering the write-off against the capital. Then the capital will be around Rs 1,194 crore - tier-I capital will be Rs 606 crore and tier-II will Rs 588 crore. It is then we will go public."
So what will be the initial public offering (IPO) size? shetty says, "The IPO size depends on our 2003 balance sheet. If the net profit is Rs 200 crore then I can have around Rs 3,000 crore of risk-weighted assets." And that will determine the bank's capital needs.
As per indications, the Kolkata-headquartered bank has plans to mop up Rs 200 crore from the equity market probably next year.
The year ended 31 March 2002 saw UCO Bank clocking good performance with its total business nearing Rs 40,000 crore (deposit: Rs 26,849 crore and advances Rs 12,805 crore). "The new business added this year was Rs 800 crore," says a gleeful Shetty.
The bank exceeded its deposit target by Rs 2,967 crore and advances by Rs 1,937 crore. The total income went up to Rs 3,124 crore (interest earned: Rs 2541 crore; other income: Rs 583 crore), while the interest expended showed a Rs 200-crore increase to Rs 1,812 crore.
The operating profit clambered up to Rs 476 crore from Rs 214 crore logged the previous year. "But for the Rs 145 crore provided for voluntary retirement scheme (VRS) and salary arrears, the net profit would have been higher than Rs 165 crore," says Shetty. Incidentally UCO Bank, like Indian Bank, delayed VRS payments, giving rise to various speculations among the retirees.
For the first time in three years the gross non-performing asset (NPA) percentage came down to single digit figure of 9.46 (Rs 1,332.65 crore). Last year it was 11.71 per cent. "The net NPA improved to 5.45 per cent (Rs 723.59 crore) from 6.35 per cent," he adds. On the other hand the capital adequacy ratio moved up by 0.59 per cent to 9.64 per cent.
The better operational performance coupled with VRS and usual retirement increased the business per employee to Rs 1.34 crore. "We are progressing well towards the various targets fixed for the year 2003 as per the restructuring plan drafted in 1997," claims a proud Shetty.
The targets he is talking about is to bring down the net NPA to 4.33 per cent, the operating profit to Rs 507 crore and the net profit to Rs 329 crore. Last fiscal the bank nearly achieved the 2003 target in respect of total business. But this performance is also a cause to worry, since the same levels he cannot expect this fiscal. And Shetty knows this very well.
The bumper profit was contributed by Rs 583-crore other income. Included in this sum is the hefty Rs 346-crore profit on sale of investments. As a matter of fact most of the government banks made hefty profits last fiscal from treasury operations that came handy for higher provisioning. "This windfall will not be there this fiscal," Shetty argues.
And this year the profits are bound to take a hit what with thinning of spreads to 2.66 per cent from 2.83 per cent the previous year. In addition, the yield on investments is also going southwards. In fact, the bank has lowered its operating and net profit target for this year at Rs 400 crore and Rs 135 crore, respectively.
According to Shetty, the bank is focussing on reducing its cost of funds by growing the savings bank deposit as well as other expenses. Last year, the savings bank deposits went up by 234 crore to Rs 1,001 crore. The average cost of funds came down to 6.74 per cent from 7.35 per cent. The yield on advances went up marginally to 10.18 per cent.
The bank also closed down 100 branches and also reduced the administrative offices to 34 to cut operational costs. "A new business committee is looking into increasing the fee-based revenue," says Shetty.
"We have budgeted Rs 200 crore for technology," he adds. Out of 1,706 branches, 663 have been IT-enabled. And multi-channel banking facilities will be provided in 200 commercially important locations. ATMs and call centres will also be set up soon.
In a bid to consolidate its position in the mid-market segment, UCO Bank has revamped all its mid-market products to make them more competitive. For instance the bank's housing loan, UCO Shelter, was made more attractive by making it customer friendly and cutting down the interest rate to 10.25 per cent. The bank lent Rs 200 crore last year under this portfolio and hopes to increase the same in the coming years.
If all things go well for the bank as planned, Shetty hopes to do a business of Rs 1 lakh crore in five years' time. And this is quite an ambitious target indeed.