Uco Bank as regional bank causes heartbreak in United Bank of India

The choice of Uco Bankas the regional bank for the east has raised many eyebrows as the United Bank of India (UBI), which is set to be merged with Punjab National Bank and Oriental Bank of Commerce, has played a more significant role in banking expansion in the east, especially in the north eastern states. 

“It has come as a surprise, we don’t really know how to deal with,” said a senior executive at United Bank of India. 

UBI, popularly known as the Tea Bank for being the largest financiers to the tea gardens of Darjeeling and Assam, has 1541 branches in the eastern and northeastern markets, with Uco’s 1149. UBI is also the lead bank in 43 districts in West Bengal, Assam, Manipur and Tripura; and convener of the State Level Bankers’ Committees in West Bengal and Tripura. 

“As far as UBI is concerned, we have a unique proposition. No other bank can match our huge presence in Bengal and other eastern states. Retaining UBI’s regional strength may make sense, we should not waste this opportunity,” UBI chief executive Ashok Kumar Pradhan had told ET in an interview on October 17 last year. 

Uco Bank is, however, a bigger bank with 3088 branches and Rs 3.11 lakh crore business mix compared with UBI’s 2055 branches and Rs 2.06 lakh crore business. 

Allahabad Bank, the biggest of the Kolkata-headquartered lenders with Rs 3.78 lakh crore business, has just about 35% of its 3229 branches in east and northeast, compared to Uco’s 38% and UBI’s 75%. 

The government has selected the merger candidates on the basis technological synergy rather than geographical compatibilities. PNB, OBC and UBI are in the same core banking solution platform Finacle. Interestingly, Uco Bank, too uses the same banking software built by Infosys. 

UBI, which has reported net profit for the past two quarters and has 51% CASA (current and savings bank account ratio to total deposits), may have been preferred for merger for its better financials than Uco Bank, a senior banker said, requesting anonymity. UBI has managed to reduce gross non-performing assets ratio to 15.89% while its net NPA was 8.19% at the end of June. 

Uco, which is still making losses, has very high NPA ratios with one-fourth of its loan assets being sticky. Its net NPA was at 8.98% at the end of June. 

“Declaring Uco as a regional bank will not solve its fundamental issues. The bank is suffering from asset quality problem which has eaten up a large chunk of capital,” said Sanjeev Jain, an analyst with Ashika Stock Broking. 

“Need of the hour for Uco Bank is to control its NPA level along with fresh capital mobilization for growth. Investors should wait till the sign of bank’s growth visibility for fresh investment on the counter,” he said. 

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