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.