KOLKATA: The special payment mechanism for importing crude from Iran has provided state-run Uco BankNSE 4.61 % about Rs 13000- 14000-crore windfall, helping the stressed lender a new lease of life.
The bank expects this interest free floating fund to boost its income but reversing the trend of continuous quarterly losses would also depend on the lender's ability to contain and recover bad loans. Uco reported losses for the past thirteenth quarters at a stretch.
The floating fund bonanza may also be truncated in the future as Uco lost its exclusive right as the designated payment bank for Iran oil imports with the government also offering IDBI BankNSE 0.47 % a similar status.
Till recently, Uco has been the sole bank settling payment for the country’s oil imports from the middle-east nation, following the tightening of US sanctions on Iran due to its aggressive nuclear programme.
Two people familiar with the matter pegged the size of the floating fund at Rs 13000-14000 crore. Managing director of Uco Bank AK Goel did not respond to text messages seeking comments on the issue till the time of going to press.
Uco’s zero exposure to the US and western financial system helped it earn this special status while exposed banks such as State Bank of India that had lost business because of the sanctions. The bank has limited overseas business with branches only in Singapore and Hong Kong.
The mechanism is such that Indian oil refiners make the payment to the designated rupee-account at Uco for importing oil from Iran. The Kolkata-based lender, in turn, makes payment to Iranian exporters for exporting goods to India. Iranian banks such as Karafarin Bank and Middle East Bank have rupee accounts with Uco to support Indo-Iran bilateral trade.
The Kolkata-based lender, which has been under Reserve Bank of India’s Prompt Corrective Action mechanism for high bad loan ratio and negative return on assets, looks to gain from the lower cost of funds as the Rs 13000-14000 crore float money it gained on account of Iran oil imports bear no cost.
This will boost its operating profit which was seen at Rs 381 crore for the December quarter. The bank reported Rs 1018 crore net loss in the same period while over 27% of its loan assets turned sticky.
While the floating fund is likely to boost the bank’s financials in the fourth quarter, it will face challenges from IDBI Bank going forward as the Iran payment pie may get distributed between the two lenders.
Source: economictimes.indiatimes.com