Speaking to CNBC-TV18 CMD Arun Kaul said this money has been utilised for making the payment of Indian exporters for exporting to Iran. While oil imports by the government from Iran have reduced in the last one year, exports have been picking up. There has been fairly substantial increase in exports to Iran in last one year, he added.
Kaul said that bank is not facing any immediate problems so far as the Indo-Iran trade is concerned. "We certainly see exports picking up substantially going forward. As on today, last couple of months we have noticed trade is more or less balanced between India and Iran."
Meanwhile, the bank has been able to take advantage of the time lag between imports and exports and has been deploying that float to earn interest. Kaul informed that the bank has seen up to USD 3 billion business in past one year
UCO Bank is hopeful of marinating net interest margin (NIM) above 3 percent.
Below is the verbatim transcript of Arun Kaul's interview with CNBC-TV18
Q: We do understand that you all were an unlikely beneficiary of the western sanctions against Iran, but now because of the change that has taken place in the past few days how is UCO Bank placed? Could you just explain the business model in terms of why there was a windfall gain for you all earlier?
A: India has been importing oil from Iran to meet its energy requirements. There are certain refineries that work only on Iran oil. These payments had been traditionally in dollars, through Asian Clearing Union (ACU). After Iran shifted away from dollar to euro, they were denied access to ACU then they settled through various different means.
A year and half back Government of India and Government of Iran decided that payments will be partly made in rupees and partly in the hard currency. That is the stage wherein UCO Bank came in and we decided to accept the assignment of handling the entire Indo-Iran rupee payment mechanism. So whatever oil is imported in India by the oil companies, 45 percent payment is made in certain designated accounts in rupees in UCO Bank.
This money is utilised for making the payment of Indian exporters for exporting to Iran in terms of Government of India guidelines. Exports were relatively low and there were more imports coming in the past. In the last one year government has reduced oil imports from Iran; however exports have been picking up. There has been fairly substantial increase in exports to Iran in last one year. UCO Bank has got the benefit because of all the oil payment 45 percent money in rupee terms comes to us. From this we pay to exporters and there is a time gap involved in import-export, therefore ewe enjoy the float. It is fairly large float that we enjoy.
In recent agreement between Iran and US certain issues have been involved there and there are certain steps to be taken by Iran with regard to the nuclear issues. The reprieve that Iran has got is that US will not insist for major oil importers like India, China and Japan to reduce further oil imports from Iran. That means India can continue to import oil from Iran as much as they did last year. So if we import oil from Iran as much as we did last year the 45 percent payment will come to us through UCO Bank.
We do not have any immediate problems so far as the Indo-Iran trade is concerned. We certainly see exports picking up substantially going forward. As on today, last couple of months we have noticed trade is more or less balanced between India and Iran. We hope that trade growth is very good and in days to come the growth will further take place.
Q: For last year or for the first six months of FY14 what would be the holding in rupees that UCO Bank enjoy because of the oil payments in Iran and given the difference in the time lag between imports and exports which you alluded to what would be the money or the benefit that the bank would have got?
A: Last one and half year that we have been holding the assignment it had been at times very small amount, just USD 100 million to as much as about USD 3 billion. It keeps on varying. Minimum level we saw was about USD 100 million and the peak level was slightly more than USD 3 billion. But we expect a good float to remain in the UCO Bank in the region of approximately about USD 3 billion.
Q: What was the advantage that you all could take on account of the time lag between imports and exports on this amount?
A: The float can be deployed by the bank to earn interest.
Q: What about the cost of deposits? Would there be any sort of change in cost of deposits at all or has there been?
A: This money has certainly helped me to push up my CASA which had gone down to as low as 21 percent. Today, we are comfortably placed at about 34-35 percent. It had also helped me to reduce the cost of the fund. Cost of the fund for the UCO Bank had gone down to as low as 6.10 percent in previous quarter which has been lowest in banking industry. If we are able to take this type of float with us I am sure my cost of deposit will certainly remain very good.
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