(More Bank) – New US sanctions against Iran's oil exports boost profits of one of India's smaller banks, which is struggling under the weight of a mountain of debt doubtful.
Uco Bank, based in Kolkata, expects Iran's preferred treatment of refinery payments for Iranian oil deliveries to add more than Rs 8 billion ($ 110 million) to annual profit, according to General Manager Atul Kumar Goel. Indian refiners are required to deposit with Uco Bank any money intended for Iran without interest, during periods of application of US sanctions.
"Our involvement in Iranian oil imports from the country gives us access to zero-rate funds, which refiners place at home," Goel said in a recent interview in his Kolkata office. "This will improve our net interest income as well as our operating income."
In 2012, the Indian government designated Uco Bank as the Iranian oil payment bank, while the United States tightened the previous sanctions regime with the aim of getting Iran to take control of its nuclear program. The bank was chosen because of its limited international presence, which makes it less vulnerable to the repercussions of its involvement in the oil trade, treated in euros and rupees to avoid exposure to the US banking system.
These sanctions were lifted in 2015, resulting in a fall in Uco's profits with the introduction of other Indian banks. But the lender resumed its former privileged role as US President Donald Trump pulled out of the 2015 nuclear deal last year and began reimposing penalties.
India was one of eight countries granted a US waiver, which allowed it to import 9 million barrels of Iranian oil a month until April. Uco Bank, which was chosen by the government to pay for imports during the waiver, said that it had started receiving the funds needed to pay for these shipments earlier this year and that it now had of a steady float of more than 100 billion rupees.
"The refiners' money has started coming in from January and we make daily payments to the exporters," said Goel. The bank pays over one billion rupees a day for oil, he added.
The increase in income generated by the interest-free float could strengthen the bank's efforts to come off a so-called quick corrective action plan – under which lenders are not allowed to take out loans as long as they do not correct their balance sheet – imposed by the Bank Reserve of India. Uco Bank will also receive an injection of about 33 billion rupees by March 31 to strengthen its risk margins, as part of the government's announced capital injection plan on Wednesday.
A quarter of Uco Bank's loan portfolio deteriorated as of December 31, although Goel said it did not expect it to increase in the coming quarters.
To contact the reporter about this story: Pradipta Mukherjee in Kolkata at pmukherjee7@More Bank.net
To contact the editors in charge of this story: Arijit Ghosh at aghosh@More Bank.net, Anto Antony, Marcus Wright
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