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On the financial restructuring package (FRP) for electricity distribution companies (discoms), UCO Bank Chairman Arun Kaul said the bank's exposure to state electricity boards stands at Rs 10,000 crore. The bank's exposure to Haryana state electricity board (SEB) is less than Rs 1,000 crore (Haryana is giving Rs 200 rebate on power bill), but has no exposure to Jharkhand & Bihar SEBs.
Below is the edited transcript of Arun Kaul interview on CNBC-TV 18
Q: We spoke with the Power Minister earlier in the day. Just to touch upon a couple of things he said. First he said that the Jharkhand, Bihar as well as Andhra Pradesh are on the verge of signing bailout packages. Could you tell us if your bank is exposed to any of these three states?
A: We have no exposure in Jharkhand or Bihar electricity boards.
Q: What is your entire exposure to the power space at this point?
A: We have exposure for discoms of approximately Rs 9,000-10,000 crore which is primarily the four - Tamil Nadu, UP, Rajasthan and Haryana and they have all been restructured. Today my credit offset will be approximately Rs 5,000-6,000 crore only in electricity boards.
Q: You said you are exposed to Haryana. The chief minister over there said they are not planning to raise the tariffs. In that case will you still continue to disperse loans to them or if you do not raise the tariffs you all will stop dispersing loans to the Haryana board?
A: It is too early to say anything about this, but we are right to go and guess for the revival plan and it is being adhered to as on date.
Q: What is your exposure to Haryana?
A: It should be less than Rs 1,000 crore as of date.
Q: Would there be any sort of incremental lending which you all would look at, especially if in case it would be a part of the FRP?
A: We are going strictly as per the FRP only. We are not going beyond that.
Q: Does that comprise of any sort of incremental lending?
A: There was a little bit of incremental lending. It was not a very large, a very small incremental lending.
Q: Delhi has already said that they have cut down the power tariffs. Haryana has now said that they are not going to be raising the tariffs. So in general we have seen at least a few state governments have opted for providing power subsidies and not going ahead and increasing the power tariffs. Do you fear the possibility that power subsidies will not be paid for example by the likes of Haryana government and banks will be faced by discoms defaulting on their loans?
A: There are two issues. Number one, if there is a price rise are the discoms able to pass it on the consumers or not. Second, they do not increase their tariff but they get subsidy for the government. So far they get subsidy from the government discoms health would remain okay. The problem comes when they would not get subsidy. We will have to wait and see how the government has reacted these state electricity boards or discoms. It is a bit too early to say anything about it, but I would like to wait and see what happens out there.
Q: What has been your past experience with regards to the subsidy payout within the discoms that you have had exposure towards and would that be an incremental worry for UCO Bank in particular? Are you worried that there could be defaults in terms of the subsidy payments?
A: So far as the electricity boards where we have financed we have seen state government honouring the FRPs, so we would have to wait and see how the things shape out.
Q: I just wanted to turn your attention towards reports doing the rounds that maybe there could be some amount of NPAs that you would be selling off or you have mile sold off certain number of NPAs within your balance sheet in order to reduce this stress. Could you just comment on the news? There were 100 counts if I am not mistaken that were being considered?
A: Last quarter also we sold some accounts, aggregate and approximately Rs 300 crore odd where a fairly large provision was made and we got about 45-50 percent of the outstanding amount which was recovered by selling to asset recovery companies. Again we have put about another 100 accounts or so for sell to the asset recovery companies. We are aggregating about Rs 1,900 crore odd.
For all these accounts fairly large provisions have already made by the bank. These are the cases where recovery is taking a long time, because of the delays in the courts or legal process or otherwise. Where recovery is getting delayed I would like to sell them off to asset recovery companies, so this attempt is being made to clean up the bank's balance sheet.
Q: How is your operating profit doing this quarter? Last quarter that is the reason why you had that jump which came in along with your NII on your profitability front. How is your operating performance for the bank in Q3 as well as guidance for Q4?
A: Our view is we should be able to maintain that trend as we have seen the first and second quarter, same trend should be maintained in third and fourth quarter also.
Q: In Q2 we saw a very sharp increase in your net interest margins (NIM)? From 2.4 it went all the way up to 3.1 percent. Will the same trend be maintained even on the NIMs
A: We expect same trend to be maintained because my current account savings account (CASA) is fairly comfortable. We are at about 33-34 percent of CASA, so we should be able to maintain that as a trend.
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