Qualitative Assessment of LCR data and Result :

Liquidity Coverage Ratio (LCR) has been introduced with the objective that a bank maintains an adequate level of unencumbered High Quality Liquid Assets (HQLAs) that can be converted into cash to meet its liquidity needs for next 30 calendar day time horizon. RBI mandates Banks to maintain minimum LCR of 100%.

Minimum requirement of LCR as stipulated by RBI is 100% for the calendar year 2019 onwards. RBI has mandated the management of LCR for individual as well as group Bank operations. Accordingly, Bank is disclosing the LCR at solo and consolidated level. The entities included while computing consolidated LCR are UCO Bank Solo (Domestic & overseas operation of Hong Kong and Singapore Center.

Drivers of LCR:

The Bank has been maintaining the LCR well above the minimum regulatory requirement on an ongoing basis on the main drivers of which are as under:

High Quality liquid Assets (HQLA): Our HQLA comprises of

following

•    Level 1 Assets

1.    Cash in hand including Cash Reserve in excess of CRR

2.    Govt. Securities in Excess of Mandatory SLR

3.    Marginal standing Facility up to 2% of Net Demand and Time Liabilities in the form of SLR securities.

4.    Facility to Avail Liquidity for liquidity Coverage Ratio up to 16% of Net Demand and Time Liabilities in the form of SLR securities.

•    Level 2 Assets (Not issued by Banks/Financial Institution)

•    Level 2A assets - With Haircut of 15%

1.    Marketable securities representing claims on or claims guaranteed by Sovereigns Public Sector Entities (PSEs) having risk weight 20%

2.    Corporate Bonds and Commercial Papers having minimum rating of AA-

•    Level 2B assets - With Haircut of 50%

1.    Securities issued or guaranteed by sovereigns having risk weight higher than 20% but not higher than 50% (i.e. Bonds with Rating AA & A)

2.    Corporate Debt Securities (including Commercial Paper) having external rating between A+ and BBB-

3.    Common Equity Shares Included in NSE CNX Nifty index and/or S&P BSE Sensex index

Composition of HQLA: The Bank during the three months ended 31st March 2024 maintained average HQLA of Rs. 60000.00 crore. Level 1 Assets contribute to approximately 98.00% of the total stock of HQLA. Facility to avail Liquidity for Liquidity Coverage Ratio constitutes the highest portion to HQLA i.e. around 63.00% approx. of the total HQLA.

Level 2 assets which are lower in quality as compared to Level 1 assets, constitute 1.87% of the total stock of HQLA against maximum permissible level of 40%.

Concentration of Funding Sources: Our Funding sources is well spread with diversified liabilities portfolio comprising mainly of

•    Non-maturing deposits

•    Term Deposit of which majority portion is coming from Retail Customers.

Funding Profile : Unsecured Wholesale funding constitutes major portion of total weighted Cash outflows. Retail Deposits and Deposits from Small Business Customer put together contribute around 36.77% of total weighted Cash outflow as on 31.03.2024. Deposits from Non-financial Corporates, Central Banks, Multilateral development banks and PSEs contribute to 52.35% of total weighted Cash outflows.

The bank is monitoring the funding sources on regular interval with the objective to monitor/reduce the concentration of funds having lower stability. The bank also monitors the concentration of top 20 depositors on regular intervals.

Bank does not have group entities, and liquidity at solo level is being managed centrally. Bank's exposure is mainly in Indian Rupee.

Qualitative discussion:

Background:

Net Stability Funding Ratio (NSFR) guidelines ensure reduction in funding risk over loner duration time horizon by requiring bank to fund their activities with sufficiently stable resources of funding in order to mitigate the risk of future funding stress. The NSFR is defined as the amount of available stable funding relative to the amount required stable funding. RBI has issued the regulations on the implementation of Net stability funding Ratio in May 2018 with minimum requirement of equal to at least 100%. The implementation is effective from 01st October 2021.

Objective of NSFR:

The objective of NSFR is to ensure that Bank maintains a stable funding profile in relation to the composition of their assets and off-balance sheet activities. A sustainable funding structure is intended to reduce the probability of erosion of bank's liquidity position due to disruptions in bank's regular sources of funding that would increase the risk of its failure and potentially lead to broader systemic stress.

Definition of NSFR:

The NSFR is defined as the amount of available stable funding relative to the amount of required stable funding.

"Available Stable Funding" (ASF) is defined as the portion of capital and liabilities expected to be reliable over the time horizon considered by the NSFR, which extends to one year.

Example:

a)    Total regulatory capital (excluding Tier 2 instruments with residual maturity of less than one year).

b)    Other capital instruments and liabilities with effective residual maturity of one year or more.

c)    Stable & less stable non-maturity (demand) deposits and term deposits with residual maturity of less than one year provided by retail and small business customers (it is considered more stable than deposits from large corporates/ institution)

d) Funding with residual maturity of less than one year from sovereigns, PSEs, and multilateral and national development banks.

Stable funding required ("Required Stable Funding") (RSF)

of a specific institution is a function of the liquidity characteristics and residual maturities of the various assets held by that institution as well as those of its Off-Balance Sheet (OBS) exposures.

Example:

a)    Unencumbered Level 1 assets, excluding coins, banknotes, CRR and SLR Securities

b)    Unencumbered Level 2A & Level 2B assets

c)    All other assets not included in the above categories with residual maturity of less than one year, including 'standard' loans to non-financial corporate clients, to retail and small business customers, and 'standard' loans to sovereigns and PSEs

d)    Unencumbered 'standard' residential mortgages with a residual maturity of one year or more and assigned the minimum risk weight under the Standardized Approach

e)    Other unencumbered performing loans with risk weights greater than 35% under the Standardized Approach and residual maturities of one year or more, excluding loans to financial institutions

All other assets not included in the above categories, including non-performing loans, loans to financial institutions with a residual maturity of one year or more, non-exchange-traded equities, fixed assets, items deducted from regulatory capital, retained interest, insurance assets, subsidiary interests and defaulted securities

Required Stable Funding

The above ratio should be equal to at least 100% on an ongoing basis. The NSFR is binding on Banks w.e.f 01.10.2021 and quarterly filing in RBI portal is mandatory.

Accordingly, we have uploaded NSFR in RBI portal for 31.03.2024 UCO Bank's Position:

Bank is maintaining NSFR much above the maximum regulatory required ratio, which shows Bank has sufficient stable source of fund to manage its fund requirement.

c) Sale and transfers to/from HTM category:

The value of sales and transfers of securities to/from HTM Category, excluding the one-time transfer of securities undertaken by the Bank with the approval of Board of Directors, has not exceeded 5 % of the book value of Investments held in HTM Category at the beginning of the year.

e)    Divergence in Asset Classification and Provisioning:

As per RBI Master Direction No DOR.ACC.REC.No.45/ 21.04.2018/2021-22 dated 30.08.2021 (updated on 15.11.2021) on financial statements-presentation and disclosures, divergences are within threshold limits in the bank. Hence, no disclosure is required with respect to RBI's annual supervisory process.

f)    Disclosure of transfer of loan exposures:

Details of loans transferred/acquired during the financial year ended on 31.03.2024 under the RBI Master Direction on Transfer of Loan Exposures dated 24.09.2021 are given below:-

e)    Intra-group exposures - Nil

f)    Factoring Exposures - Nil

g)    Unhedged foreign currency exposure

In terms of RBI Guidelines, our Bank has framed a policy on 'Unhedged Foreign Exchange Exposure by borrowers including SMEs and Corporates duly approved by the Board. The policy inter-alia provides for:

•    Monitoring and review of Unhedged Foreign Currency Exposure (UFCE) of all customers including SMEs.

•    Incremental capital and provisioning requirements for exposures to entities with Unhedged Foreign Currency Exposure.

•    Stipulation of UFCE Charge in order to provide protection and discourage entities having UFCE.

Based on the available data and financial statements and the declaration from borrowers, the bank has estimated the liability of Rs. 34.22 lakhs as on 31.03.2024 on Unhedged Foreign Currency Exposure (UFCE) to their constituents in terms of RBI Circulars and our Board approved policy and provision for the same has been provided in the books.

c) Disclosures on risk exposure in derivatives I) Qualitative disclosures-

i) The Structure and organization for management of risk in derivatives trading:

The organization structure consists of Investment Wing at the Corporate level which report to the Executive Directors, Chairman & Managing Director and ultimately to the Board. Risk Management Department is informed of the transactions as and when they take place.

ii) The scope and nature of risk measurement, risk reporting and risk monitoring systems:

a)    The Interest Rate Swap (IRS) transactions undertaken by the Bank are for hedging and trading purposes. Derivative as a product is also offered to the customer as per RBI norms. Such transactions are undertaken as per policies of the Bank formulated based on RBI guidelines.

b)    The risk is measured in the interest rate derivative transactions depending on the movement of benchmark interest rates for the remaining life of the interest rate swap contracts. All interest rate derivative transactions are included for the purpose of risk measurement. The risk is evaluated and reports are placed to the CMD/ED daily and Board periodically. Risk is monitored based on the mark to market position of the interest rate derivative transactions.

(iii)    Policies for hedging and /or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/ mitigates:

IRS is undertaken on the actual interest bearing underlying assets or liabilities. The notional principal amount and maturity of the hedge does not exceed the value and maturity of underlying asset/liability. The risk is monitored on the mark to market basis of the outstanding interest rate swap contracts and accordingly the effectiveness of the hedge is determined.

Collateral required upon entering into IRS is Nil. Notional principal amount of IRS multiplied by the relevant conversion factor and the respective risk weight of the counter party has been taken into account for determining the capital requirements.

(iv)    Accounting policy for recording hedge and non-hedge transactions; recognition of income, premiums and discounts; valuation of outstanding contracts; provisioning, collateral and credit risk mitigation:

The accounting policies for recording swaps is as per our extant derivative policy. It defines accounting entries to be undertaken on trade date, interest accrual, intermittent interest settlement date, revolution date and termination date.

For recognition of income, premiums and discounts, valuation of outstanding contracts, provisioning, collateral and credit risk mitigation is as per our Bank's Derivative Policy.

(vi) Other Disclosures for Interest Rate Swaps:

The Bank has undertaken fixed to floating and floating to fixed interest rate swaps on underlying assets and liabilities. The loss of income on the above IRS will be Rs.12.84 Cr, in case counter-parties fail to fulfill their obligations. There is no concentration of credit risk arising from IRS transactions undertaken as the counter-parties are the Clearing Corporation of India Ltd. and the exposure is within the exposure limit permitted.

12.    Disclosure of penalties imposed by the Reserve Bank of India

During the Financial Year from 01.04.2023 to 31.03.2024, Reserve Bank of India, in exercise of powers conferred under Section 47(A)(1)(c) read with Section 51 and 46(4)(i) of the Banking Regulation Act, 1949, has imposed a penalty of Rs. 30275/- (Rupees Thirty thousand two hundred seventy five only)for other than currency chest operations. There is a penalty of Rs. 1,06,791/-(One lakh six thousand seven hundred ninety one only) from other than RBI Regulator.

During the Financial Year from 01.04.2023 to 31.03.2024, Reserve Bank of India, in exercise of powers conferred under Section 47(A)(1)(c) read with Section 51 and 46(4)(i) of the Banking Regulation Act, 1949, has imposed a penalty of Rs. 65,21,431.81 (Sixty five lakh twenty one thousand four hundred thirty one and Paisa eighty one only) for Currency Chest Operations only.

13.    Disclosures on remuneration

The pay and allowances admissible to ED/MD is as received from DFS and in light of Government decision on the recommendations of the Seventh Central Pay Commission.

f) Implementation of IFRS converged Indian Accounting Standard (IND AS)

Background:

Scheduled Commercial Banks (SCBs), excluding Regional Rural Banks (RRBs), were required to implement Indian Accounting Standards (Ind AS) from April 1, 2018 vide RBI Circular dated February 11, 2016. However RBI has deferred implementation of Ind AS till further notice due to the legislative amendments as recommended by RBI are under consideration of the Government of India vide its notification dated 22.03.2019. RBI vide email dated 8th August'2021 decided to reduce the frequency of Ind AS proforma financial statement submission from quarterly to half yearly. Accordingly, Banks are advised to submit proforma Ind AS based financial statements for the half year ending September 30 and full year proforma Ind AS based financial statements for March 31.

Progress on IND AS implementation:

Bank has submitted the Proforma IND-AS Financial statements to Reserve Bank of India with reconciliation of change in Equity & profit on half yearly basis and last submitted on November 30, 2023 for the half year ended September, 2023 compared with the previous GAAP figures.

h)    Disclosure on amortisation of expenditure on account of enhancement in family pension of employees of banks

During the FY 2023-24, there was no additional liability on account of revision in family pension consequent to the 11th Bipartite Settlement and Joint Note dated November 11, 2020 as Bank had already charged the entire additional liability on account of revision in family pension upto the year ended 31st March 2023. As on 31st March 2024, unamortized provision is nil

i)    MSME Restructured Accounts:

a) In accordance with the RBI Circular No. DBR.No.BP.BC.18/ 21.04.048/2018-19 dated 01.01.2019, DOR.No.BP.BC.34/ 21.04.048/2019-20 dated 11.02.2020 and RBI/2020-21/17 DOR.No.BP.BC/4/21.04.048/2020-21 dated 06.08.2020 on Micro, Small and Medium Enterprises (MSME) sector -Restructuring of Advances, the details of MSME restructured accounts as on 31st March 2024 are as under:

j) Contingent Liabilities

a)    Such liabilities as mentioned at Serial No. (I) of Schedule 12 of Balance Sheet are dependent upon the judgment of court, arbitration award, out of court settlement, disposal of appeals, the amount being called up, terms of contractual obligations, devolvement and raising of demand by concerned parties, respectively and necessary provision is made where claim against the Bank is tenable.

b)    Disputed demand as per orders passed by Income Tax/ service tax/GST Department on account off income tax, GST and Service tax has been shown in schedule 12 under Contingent Liability. No provision has been considered necessary by the Management as the matters are pending for disposal before various Competent Authorities

15. The bracketed figures indicate previous year's figures. Previous year's figures have been re-grouped /re-arranged/ re-casted wherever considered necessary.

Disclosures Requirement as per Accounting Standards:

1. Net Profit or Loss for the period, prior period items and changes in accounting policies (AS-5):

There were no material "prior period item" included in Profit and Loss account required to be disclosed as per AS - 5 issued by ICAI read with RBI guidelines. There is no change in the Significant Accounting Policies adopted during the year ended 31st March 2024 as compared to those followed in the previous financial year 2022-23.

iv) Foreign Currency Translation Reserve (FCTR)

Bank has not recognized in profit and loss account the proportionate exchange gains or losses held in foreign currency translation reserve on repatriation of profits from overseas operations.

c) Associates

Regional Rural Banks (RRBs)

UCO Bank sponsored RRB namely, Paschim Banga Gramin Bank (PBGB) is head quartered at Howrah, West Bengal with four regional offices and 230 branches as on 31.03.2024.

Capital position of RRB

The total capital of Paschim Banga Gramin Bank as on

31.03.2024    stood at Rs.682.86 Cr. comprising Rs. 341.43 Cr. from Govt. of India, Rs.239 Cr. from UCO Bank (as sponsor Bank) & Rs. 102.43 Cr. from West Bengal State Govt.

Performance of RRBs during 2023-24

Paschim Banga Gramin Bank:

As per unaudited financial results, total deposit of Paschim Banga Gramin Bank stood at Rs.6906 Cr. as on 31.03.2024, registering growth of 5.11%. Total advance reached a level of Rs.4149 Cr. with an annual growth of 10.71% 31.03.2024. CD ratio stood at 60.08% as on 31.03.2024 as against 57.05% on 31.03.2023.

The gross NPA stood at Rs.337.05 Cr. as on 31.03.2024 vis-avis Rs. 351.11 Cr. as on 31.03.2023. Gross NPA to Gross Advance stood at 8.12% as on 31.03.2024 as against 9.37% as of 31.03.2023. The net NPA ratio of the RRB stood at 0.77% as on

31.03.2024    as against 3.94% as of 31.03.2023.

All the above figures are unaudited.

6.    APPLICABILITY OF AS- 21 and 23:

The Consolidated Financial Statements have been prepared in accordance with Accounting Standard 21-" Consolidated Financial Statements" and Accounting Standard 23-" Accounting for Investments in Associates in Consolidated Financial Statements", issued by the ICAI.

The financial statement of the associate considered in preparation of Consolidated Financial Statement are drawn upto 31st March 2024.

7.    Intangible Assets (AS-26):

Fixed Assets include computer software, which has been considered as intangible assets as per AS-26 issued by the ICAI. The movement in software asset is given below:

8.    Impairment of Assets (AS-28):

In view of the absence of the indication of material impairment within the meaning of clause 5 to clause 13 of Accounting Standard - 28 "Impairment of Assets" no impairment of fixed assets is required in respect of current financial year.

9.    APPLICABILITY OF AS- 24, 27.

As the Bank does not have Subsidiaries or controlling interest in Associates/Joint Ventures, AS-24 - Discontinuing Operations and AS 27 - Financial Reporting of Interest in Joint Ventures issued by the ICAI are not applicable to the Bank.

10.    AS - 15 -Employee Benefits (Revised):

i.    The Bank had adopted Accounting Standard 15 (Revised) "Employees Benefits" issued by the Institute of Chartered Accountants of India, with effect from 1st April, 2007.

ii.    The summarized position of Post-employment benefits and long term employee benefits recognized in the Profit

12. Accounting for Taxes on Income (AS-22) :

a) The Bank does not have any current Income Tax obligation during the year. During the FY 2023-24, net amount of Rs. 895.74 Crore (Rs. 1011.07 Crore has been reversed for FY 2022-23) has been reversed as Deferred Tax Assets as per accounting standard AS-22.

The Government of India has pronounced Section 115BAA of Income Tax Act, 1961 through Taxation Laws (Amendment) Ordinance, 2019 which provides domestic companies a nonreversible option to pay corporate tax at reduced rate effective from 1st April, 2019 subject to compliance of certain conditions. Bank is currently in the process of evaluating this option and continues to recognize the taxes on income for the year ended 31st March, 2024 as per the earlier provisions of the Income Tax Act, 1961.

13. In terms of RBI Circular No. DOR.ACC.REC.No.91/ 21.04.018/2022-23 dated 13.12.2022, the disclosure relating to item under subhead "Miscellaneous Income" under the head "Schedule 14-Other Income" exceeds one percent of total income, are as under:

14. The bracketed figures indicate previous year's figures. Previous year's figures have been re-grouped /re-arranged/ re-casted wherever considered necessary.