Ashwani Kumar, MD & CEO, UCO Bank, says “our target is to grow operating profit by 15% during this financial year and on a year-on-year basis and profit after tax is a play of provisions and going forward looking at the PCR, we are having around 94-95% PCR and our net NPA is already 1.19% and the provisioning requirements on a quarter-on-quarter basis, on year-on-year basis will come down. Our gross NPA is also coming down. It has come down to 4.48% this quarter and we will continue to see the declining trend in the remaining quarters as well and with all this in place, the ROA will improve in the coming quarters.”
There is a section of the market which believes that the last few quarters of credit growth have been very strong. From here on, on the one hand, yes, there is festive season where credit generally perks up but the trend would be smoothening out. Is that a trend you see developing or do you see good growth on the credit side for next four to six quarters from current levels as well?
First of all, I will give you a brief data point. Inflation data shows inflation is coming down. GDP numbers are growing. Our PMI, even services, even manufacturing, is in expansion mode. E-way bill and all high frequency indicators are indicating growth. Our consumption story is good. I believe that based on these numbers going ahead, the credit growth will continue to have a good momentum as we go ahead in this financial year and going forward also the way the government is supporting growth, the government is coming out with so many projects in the infrastructure story, so the credit growth will continue to be good in the coming months as well and coming years as well.Tell me about the return on asset ratio trend as well. It has been very volatile of late. When do you expect to breach that 1% mark? Is there any internal target that you are working with?
See, if I talk about UCO Bank, currently we are working in a very strong way for a growth in our operating profit. Our target is to grow operating profit by 15% during this financial year and on a year-on-year basis and profit after tax is a play of provisions and going forward looking at the PCR, we are having around 94-95% PCR and our net NPA is already 1.19% and the provisioning requirements on a quarter-on-quarter basis, on year-on-year basis will come down. Our gross NPA is also coming down. It has come down to 4.48% this quarter and we will continue to see the declining trend in the remaining quarters as well and with all this in place, the ROA will improve in the coming quarters. But as far as quarter or the year, the number which you have specified that internally we have not kept any target, our target is to improve our operating performance on a quarter-on-quarter basis.
What is the aspirational ROA level? If you look beyond the one or two quarters, in next 12 to 14 months where would you like to see your ROAs?
I will just reiterate that our focus is on bringing operational efficiency in the system because if you look at our cost-to-income ratio, that is also quite high as compared to other banks. We are working to reduce that cost-to-income ratio also. But given that we are planning to spend on technology on a very high basis and cost-to-income ratio will continue to remain a little elevated but the focus, may not be this year but maybe by next year, we will be touching or meeting the expectation of the Street by clocking that ROA next year.
Let’s talk about the asset quality as well because looking at your NPA, that ratio has come down from 2.5% all the way to just 1.2%. Even gross NPA is down from 7.5% to around 4.5%. What are the targets here? Do you see more room for improvement in your asset quality?
Our target for this year is to bring gross NPA level to less than 4%, maybe 3.75% by the year-end and in net NPA, our target will be less than 1%. So, sub-1 basis will bring it maybe 90 odd basis after this financial year, 31st March 2024, that is internal target keeping in view the way the recovery team, the way our monitoring team is performing and internally we have kept a target that our recovery should be more than our slippages. Banking on that, I am quite hopeful that our net NPA will be less than one and our gross NPA will be less than four by the year end.
Your current net NPA is 1.18%, closer to 1.2% and GNPA is at 4.48%. So you are talking about 50-60 point reduction or improvement on GNPA, almost 20-30 basis points in the next two quarters on net NPA. How is the visibility looking on the recovery end? Are you looking at some write backs in the next few quarters via recoveries?
Yes, we have a PCR of 95%, so the recoveries are coming from the NPA accounts and those accounts are mostly Doubtful category or Loss category or Doubtful 2 category where the provision coverage is very high and there is always a position of write back on those accounts. We have a TW portfolio also, but in TW portfolio, there is a challenge that we do not have large accounts which are likely to be resolved in this quarter.
We can expect some, one of the large TW accounts to be resolved in the next quarter and through that we can expect some good handsome amount in TW recovery also in the next quarter. But this quarter our focus is on recovery upgradation and write back through recovery will be reasonably good because 95% is already provided for.
The new trend per se which the industry is looking at tapping is digitization as well and that is what we are seeing a lot of fintechs and other micro lenders also actually tapping into what are you doing in terms of increasing your digital presence and also with respect to funding this growth would you have to raise any funds soon or you are well capitalized?
I will answer in two parts, first is digital. I am happy to share that the bank has already started working on the digital front. The first thing which we introduced in this quarter is digital on-boarding or customer acquisition through digital mode, we have started Tab banking. The pilot has been successful in 10 branches. By September 30, we plan to roll out in 1,000 branches. So through Tab banking we can reach out to the customer’s place where they can open RD accounts, make cheque book requests, can go for internet banking requests or open FDR digitally. All these things will be available through Tab banking in 2,000 branches.
Our second phase of digital Tab banking is that we will capture all their loan leads request also digitally at the customer’s place.
Third, we are now taking to the next board meeting for the digital transformation of the digital lending journeys also. For that, we are taking to the board for on-boarding of digital partner by way of a knowledge partner. We will be going to RFP maybe at the end of this quarter itself or maybe October first week or second week once the board approves that.
So with that, we will be bringing all our digital journeys on our mobile app. Currently, we already have on five or six journeys on the mobile app and we will be revamping and bringing all our retail journeys, all our MSME suits on the mobile app in the next one year. By the end of next year, our entire digital transformation will be through an on-boarding digital platform.
One more thing we have already started is the change management in our branches through our network. We have identified digital champions at branches and digital spoke at zonal offices. We are going for the change management for digital in three phases. One, for our frontline staff, that is our branch heads and then second line our assistant branch managers and then to the branch staff. This is a three-way change management. We will be sharing our digital footprints available to our staff first because staff are our brand ambassadors for change management and they will take it to our customers.
How much of your loan book is coming by direct lending? Do you have any co-lending tie-ups with some NBFCs? Is that a model you will prefer from here on?
We have already done co-lending tie-ups with four, five NBFCs and we have already reached a portfolio of approximately Rs 5,000 crore through co-lending and we will continue to work on the co-lending front by entering into various partnerships with many of the NBFCs. That is one space we are working in and we are also working on a partnership on the gold loan portfolio. We are expanding our gold loan portfolio in the south, in the north, in the east and we have started working on that.
Currently our gold loan portfolio is not huge, so we have initially given us a target of at least 100% growth in this financial year and then from next financial year we will be looking at exponential growth by bringing all infrastructure at our branches.
