Money & Banking
UCO Bank: Another template of rot within PSBs
UCO Bank turns out to be among the worst banks in every downturn and needs repeated capitalisation. But nobody is ever asked to pay a price
Public sector lender UCO Bank, like many of its peers, is suffering from a bad loans problem. The operational rot in the Bank can be gauged from the loan exposure to certain companies. Loan exposure of some of the big accounts of UCO Bank is as under: 
A large number of companies in of the list allegedly have bogus turnover, which have been used to borrow money. Now, such companies have either almost shut down their operations or running measly operations with annual loss in hundreds of crores. Recovering even 10% of the exposure could be extremely difficult for the lenders. 
A group like Lanco, which is run by L Rajagopal, a Congress MP in the previous regime, who was suspended for using pepper spray inside the Lok Sabha, may not go bankrupt. But when and how much they will pay back to UCO Bank is the real question. The chances of recovery of these risky exposures is practically nil. Consider the brief profile of these companies and the flagship companies of these corporate groups. 
The Lanco group is in financial trouble due to overexposure to capital-intensive sectors and excessive debt. The flagship company of the group Lanco Infrastructure has a debt of more than Rs37,000 crore and a negative net worth. With such huge debt and losses, its ability to service the full debt is a big question. If at all there is hope in future (after few years), UCO Bank will have to forego entire interest amount and even substantial portion of principal through One Time Settlement (OTS) or Corporate Debt restructuring (CDR)).
Amtek Auto, the flagship company of Amtek group, has reported a loss of Rs448 crore for the last nine months. It has a huge debt of more than Rs12,000 crore. 
Sterling Biotech has reported a huge loss of Rs377 crore for trailing 12 months. It has a total debt of more than Rs3,000 crore. At present, it is a penny stock. This makes UCO Bank’s exposure to all but worthless as its revival is ruled out. 
One of Essar Group's companies Essar Oil has a total debt of more than Rs25,000 crore and an extremely high debt to equity ratio of 4.68 on 31 March 2015. The group has a total debt of around Rs45,000 crore. Essar Steel is again in financial trouble and looking for relief from banks. 
ElectroSteel, which is a penny stock, has a total debt of Rs9,500 crore with a debt to equity ratio of 9.7 on 31 March 2015. With huge project cost, UCO Bank will find it nearly impossible to recover its Rs359 crores and sooner or later may write it off as bad debts. This is especially so because the company is now under the control of the banks. Even in this scenario, it will have to make a big sacrifice under OTS after a few years.
Visa Steel, the flagship company of Visa Steel Group, had a debt of around Rs3,118 crore with a negative net worth based on consolidated numbers for FY14-15. It reported a loss of more than Rs400 crore in the last nine months, while UCO Bank's exposure to the company is Rs130 crore. 
Zoom developers has already gone bust and the group is under investigation by Enforcement Directorate (ED) and Central Bureau of Investigation (CBI). There is absolutely no hope of recovering the Rs309 crore lent to it by UCO Bank. 
As per results for quarter ended 31 December 2015, UCO Bank reported a huge loss of Rs1,498 crore. The bank's Gross non-performing assets (NPAs) stand at 10.98% (Rs14,932 crore), which is amongst the highest. Its domestic NPAs stand at a huge 12.01%. Its yield on advances is below the base rate at merely 9.48%. UCO Bank’s net NPAs stood at 6.51% as compared to 4.25% a year ago. Its return on assets (annualised) stands at -2.56%. Its cost to income ratio is at nearly 50%, which is extremely high. Its fresh slippage is at Rs7,148 crore, which is 5.5% of advances, although industry norm is 1%. Net interest margins (NIMs) of UCO Bank stand at an abysmal 1.93%.
Even then, the worst may not be over for the bank yet. With such huge defaults, NPAs of UCO Bank may continue to rise even in FY16-17 and financial position of state-run lender can take big hit. Exposure to large NPAs is more than Rs11,000 crore. This figure seems all the more frightening as security against same is less than 15%, or in certain cases less than 10%. This makes loan recovery impossible. Some frauds in fixed deposits or advances have come on surface, which are under investigation by CBI. This may lead to further liabilities for the Bank.
UCO Bank has had difficult times in the past. RBI had earlier in 2008 put UCO Bank on a monthly monitoring system. Currently, the Bank has a market capitalisation of around Rs3,440 crore. The stock has been on a declining trend in the past year like other PSBs. After touching a high of Rs77 in March 2015, it has crashed by nearly 60% to around Rs32 currently. But despite the fact that the bank is a stretcher case and will need to be capitalised by taxpayers’ money, no heads will roll, while Reserve Bank keeps making pious statements of intent. 



S. Ganesan

1 year ago

It is time for looking into the present status of all Chairmen and EDs who have retired from Public Sector Banks during the last 10 years. When they were in service there was alleged involvement corruption in getting those coveted posts (Conclusion from above; A section of people should have become filthy rich). After retirement these Chairmen and Eds (irrespective of the tenure they were occupying and irrespective of their efficiency to manage) are getting sumptuous Pension (linked to Pay Commission revision. Other staff don't have this benefit) and also Board position in many companies with they had connection (getting a sumptuous amount in addition Director's fees). Many are alleged to have got houses at Cheaper land rates compared to market price (thus getting an indirect benefit). Some where so influential that right from the date joined the Bank till they become ED & Chairman (without any operational experience at a senior level) and also managed a posting in Mumbai area only

Shailendra Jain

1 year ago

UCO bank has been known for fradulent activities. They file bogus cases against the customer which have taken loans and have given collateral securities of higher values. Their senior mangers and DGM level officers give incorrect information in their affidavits in DRT (Debt Recovery Tribunals)and make customer run for their productions in long drawn legal battle. They hire Goons to threaten customers and are in hand in gloves with for sharing the service charges paid to such entities and are recovered from customers. No wonder what kind of benefits these officials would be deriving from such big loan defaulters at the cost of smaller customers.I am also a victim of their misdeeds and fighting long drawn legal battle.

Ramesh Poapt

1 year ago

Request ML to give comparative NPAs,coverage ratio,CAR,Gross & NetNPA to Reserve of PSU banks,to know who is worse amoung worst!

G R Chari

1 year ago

A very good expose of the stench emitting from the rot in the banking system. The virus of non-performing loans (NPL) has now spread from the public sector banks (PSB) to some marquee names in the private banking space also. Though Dr. Rajan took hold of the reins of RBI in September 2013, it is only in recent times that he has become active in going after the banks with a stick in his hand. When the PM & FM called a meeting of the bank heads on January 1, 2015, no grave sign or concern of the NPA problem came to light then. It is, therefore, quite obvious that the banking heads were busy layering of the bad loans and trying to shove it down to posterity. The bad loan issue has created such a scare that it has now reached the portals of the Supreme Court of India which has directed the RBI to give a list of loan defaulters above Rs.500 crores in an sealed cover. The data from RBI showed that bad debts which stood at Rs 15,551 crore for the financial year ending March 2012, climbed to Rs 52,542 crore by end-March 2015. Of course, no reasonable explanation is offered for this surge in NPA's except to say that they are part of the normal provisioning activity of the banks. Possibly taking a cue from all this, the PNB was forthright in coming out with a list of 904 wilful defaulters owing ~ Rs.11,000 crores to the bank. In spite of the surmounting problems the bank's face, what is most regrettable is that there is no sincere effort to come to the grips of the problem except the beaten down path of transferring the NPL's to ARCIL or creating a Bad Bank or whatever. This process or step is definitely bad as it absolves the responsibility and accountability of the Top Management of the bank. The worse thing is that, most of the NPL are under-secured with inadequate collaterals and this creates a serious doubt as to how much of NPL's will be recoverable. So, there is a real challenge before the govt/RBI to meet this crisis head-on. Tough problems call for tough solutions and, if the RBI and the government is sincere (which most govts. are not, due to political-business nexus), they really have only two or three choices before them:
1) Create or form a Recovery Cell or Directorate in each bank and give them a specific mandate to recover the bad loans within a specified time frame (of say, one year). The RC will be headed by a person in the rank of Executive Director with independent charge and he shall report to the bank's Board or a specific Committee of the Board on a regular basis. If the need arises, the ED will have the power to take the help or assistance of the CBI or similar investigating authority of the state to help in the recovery of bank loans.
2) Repeal the Bank Nationalization Act of 1970 and, if that takes time due to Parliament logjam, amend the Act to bring down the stake of the govt. to 49% paving the way for privatization of 29 PSB's. Even the very intent of the govt. to privatize the PSB's will get a thumbs up from the market and will arrest the erosion that is taking place in the bank's market capitalization. With this measure, the govt. will still have a significant say in the management, running and overseeing of the bank's operations. The experiment of the govt. in appointing a professional banker to head Bank of Baroda has given a positive response to this approach. However, the State Bank of India can continue to be a state owned bank under the SBI Act and continue as a banker to the govt.
3) As the above move will be resisted by the bank's union, it may be necessary to declare and bring the PSB's under the National Security Act or such similar law in force. Simultaneously, each bank should aggressively pursue voluntary retirement scheme.
In the absence of strict measures to contain the NPA problem, mere infusion of fresh capital into the banking system will merely amount to throwing good/scarce public money in the drain. The banking sector is a proxy for the economy and the strengthening of the banking sector will automatically strengthen the economy.

Mahesh S Bhatt

1 year ago

Great Legally Financial Engineering Geniuses.

Cocktail of Politics+Business+Greed

King of Good Times is Taste of India Inc.

Another template Real Estate

Next Power Telecom Textile Infrastructure Airlines Oil & Gas Railways PSU's Government Bureaucrazy+ Ministers.

It happens in USA now Made & Make in India to Madden India.

Om Shanti Om No place for Home & Homa.Suicide

Mahesh Bhatt

Simple Indian

1 year ago

We all know how PSU Banks end up with such hge NPAs. Apart from internal corruption scandals in these PSU Banks, the political pressure to give loans to known / repeat defaulters like Vijay Mallya is well known. Considering the huge losses PSU Banks suffer every time such disclosures on NPAs emerge, it seems evident that these inefficient Banks are kept afloat by Govt only for political gains at taxpayers' expense. After the capitalization will happen from public funds. Air India is not the only white elephant for Govt to keep afloat. Hence, it is high time the Govt decides to divest from these perennially loss-making entities and restrict its role only to regulating the sector.


1 year ago

Its high time govt should start selling such banks to private enterprenues and no more capital infusion should be given.
Secondly employees should be held responsible for non recovery of loans.
Where are the so called Union leaders who just call for strike to get there demands fulfilled but when time for recovery comes they are no were to be seen why.let the losses written of be recovered from the salaries of the employees.
Let's see how effective it becomes.

Sunil Rebello

1 year ago

In a weeks time we will have the Indian Budget.

what will be new.. the poor middle class will be taxed more and the FII and Industry Tax will be lowered.

The Government appoints Panel after Panel to advise - but is the advise taken or only on paper.

the banks will never improve as the top / directors are all Government appointed or nominees.

Is it the job of the Government to run Banks / Industry / Hotels. when will they have time to run the country.

it is not only India but the world over the banks are in problem and the Government comes to their rescue.. see 2008.

2016 will be no different.

Rajendra Ganatra

1 year ago

Good analysis. Yet another comatose victim of a management structure where the owner exercises no control, and in fact renders negative influence. That's simply because the owner i.e. government is totally unconcerned! So everyone nibbles the pie, including the employees.

Such NPA levels are purely due to internal factors, but none is held responsible.

Indian Railways to install 17,000 bio-toilets
New Delhi : Railway Minister Suresh Prabhu on Thursday announced that the Indian Railways will provide 17,000 bio-toilets on trains and additional toilets at 475 stations before the closure of the 2016-17 financial year.
"World's first bio-vacuum toilet developed by the Indian Railways is being used in Dibrugarh Rajdhani Express. Seventy four more trains have been added under on-board housekeeping services and another 400 are to be covered soon, leading to a total number of almost 1000 trains under the scheme," Prabhu said while presenting this year's railway budget in the Lok Sabha.
"In pursuance of our mission 'Swachh Rail Swachh Bharat', Indian Railways will provide 17,000 bio-toilets in trains and additional toilets at 475 stations before the closure of this financial year," he added.
"Railways has initiated the audit of operations in the busy Ghaziabad to Mughalsarai section that is impacting the overall punctuality of the entire network. Some improvement is already visible and capacity augmentation in the medium term will further reduce the delays," the minister added.
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.


E-catering services to be extended to 408 stations: Prabhu
New Delhi : E-catering services will be extended to 408 stations from 40 now, Railway Minister Suresh Prabhu said here on Thursday.
“IRCTC will manage catering services in a phased manner,” Prabhu said while presenting the Railway Budget 2016-17 in parliament.
He also said catering services will be unbundled by IRCTC by categorizing into food preparation and food distribution. 
Prabhu said Indian Railways will explore the possibility of making mandatory catering services optional in the trains.
He said that a new policy of multi-purpose stalls as against existing single purpose stalls is to be introduced in all stations.
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.


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