FUCTIONAL LEVEL STRATEGIES OF UCO BANK

New Business Initiatives

SUPERIOR INNOVATION OF UCO BANK

i) A new banking product titled UCO Magic Cheques (pre- funded
cheques) was launched by Shri Arun Ramanathan, I.A.S., Secretary
(Financial Services), Govt, of India, New Delhi at a function held in
New Delhi on 2nd September, 2008.

ii) For current account holders who opt to maintain stipulated minimum
balance with the Bank, a new product, UCO Premium Plus, which offers
free remittance facility by way of DD/TT/MT/RTGS/Pay Orders etc. upto 2
times of the chosen Minimum Monthly Average Balance on a daily basis,
was launched.

iii) Central Credit Processing Unit (CCPU) for advances other than
Retail Advances has been started as a pilot project at Bhubaneswar,
Orissa.

iv) Debt Syndication Cell set up under Flagship Credit Department for
syndication of terms loans, to provide consultancy services and to help
make the Bank as Lead Bank in consortium advances in order to augment
Fee- based income.

v) To strengthen the Banks Credit Portfolio with quality advances

generating good yield, Golden Clearance Scheme was introduced whereby
decision regarding credit applications of our A or better rated
existing corporate clients was being communicated within a maximum
period of 3-5 days.

vi) Setting up a Crisis Monitoring Cell at the corporate level to

review/monitor the Banks exposure under sensitive sectors like steel,
real estate, cement and textile in the present situation of Global
Financial Turmoil.

SUPERIOR CUSTOMER RESPONSIVENESS OF UCO BANK

vii) On-line Request System for UCO Education Loan has been made
available on Banks website.

viii) Introduction of Performance-based Cash Incentive Scheme for Rural

and Semi-urban branches of the Bank.

Financing new farmers

The Bank has financed 102686 numbers of new farmers with an amount of
Rs.671.12 crores during the FY08-09.

Issuance of Kisan Credit Card

 113518 numbers of Kisan Credit Cards were issued involving an amount of
Rs.692.77 crore during the FY08-09.

Finance to SC/ST

As a part of social banking, the Bank has provided Rs. 1787.36 crore
finance to SC/ST beneficiaries which is 7.1 7 per cent of total
Priority Sector advances.

Finance to Women Beneficiaries

Women beneficiaries were given finance to the tune of Rs. 3429 crore
which constitutes 6.89 per cent of Adjusted Net Bank Credit against the
National Parameter of 5 per cent.

Finance to Minority Community

As on 31.03.2009, credit facilities of Rs. 3176 crore has been extended

to Minority Communities which is 13.01 per cent of Priority Sector
Advance as against the target of 13 per cent set for the year.

Finance to Weaker Section of Society

The Bank has extended credit to the extent of Rs. 5973 crore to Weaker
Sections of the Society, which constitutes 12 per cent of Adjusted Net
Bank Credit against the National Parameter of 10 per cent.

- The year 2009 has been declared as Year of Customer. During the
FY08-09, the Bank has taken several steps to improve the quality of
the customer service and has become more responsive to the customers.
The Bank always took a keen interest in ensuring that no customer is
deprived of his/ her rights. The guidelines of the Banking Codes &
Standard Board of India which reflects the duties of the Bank towards
its customers have been properly displayed at all the branches. The
same has also been put up on Banks website. The Bank has also
introduced Toll Free Help Line/e-mail ID of the Call Centre to enable
the customers to have interaction with regard to our various products
and services.

SUPERIOR QUALITY OF UCO BANK

1. Risk Management
The Bank has put in place Risk Management Policy, Loan Policy and Asset
Liability Management Policy duly approved by the Board of Directors.
All functions relating to Risk Management are in accordance with these
policy directives.

The organizational framework for Risk Management in the Bank comprises

of Board of Directors and Risk Management Committee of the Board at the
apex level. Risk Management policies in the area of Credit Risk, Market
Risk and Operational Risk are formulated by the Board. The Bank has
three executive committees viz., Credit Risk Management Committee,
Asset Liability Management Committee and Committee for Operational Risk
Management, who are entrusted with the responsibility of design and
implementation of Risk Management processes in the respective areas in
accordance with the policies laid down by the Board. The decisions of
these committees are reported to the Risk Management Committee of the
Board. The decision/minutes of the Risk Management Committee of the
Board are submitted to the Board of Directors.

In the matter of implementation of the Risk Management guidelines

issued by the Reserve Bank of India, the Bank has reviewed its progress
and also adopted item-wise action points including a time frame
approved by the Board.

A Capital Planning Committee has been set up for Capital Management and
Balance Sheet planning.

Basel II Compliance

The Bank has implemented the New Capital Adequacy Framework. It has
adopted Standardized Approach for Credit Risk and Basic Indicator
Approach for Operational Risk under the Revised Framework with effect
from March 31, 2008 in accordance with regulatory requirements.

The Bank computes its Capital to Risk Weighted Asset Ratio (CRAR) both
under the old and the revised guidelines on an ongoing basis. The Board
is kept informed on the Impact of various elements/portfolios on the
Banks CRAR. The Bank has in place Board approved policy on utilization
of the credit risk mitigation techniques and collateral management, on
disclosures and on Internal Capital Adequacy Assessment Process
(ICAAP).

Credit Risk
In order to control risk exposures, the Bank has put in place
guidelines on Single and group Borrower exposure, Un- secured exposure,
Capital Market Exposure and Counter Party (Inter Bank) exposure within
the ambit of regulatory directives wherever warranted. Industry/Sector
wise exposure limits have also been put in place to avoid concentration
of risk and also to maintain a market share reasonably comparable with
exposure of all scheduled commercial banks. Adherence to prudential
limits is monitored by Credit Risk Management Committee of the Bank and
Risk Management Committee of the Board.

The Banks Loan Policy provides guidelines for risk acquisition in the
area of Credit. Industry Reports and the industry average of important
financial parameters of various industries are being provided to the
operational wings which are taken into account for taking credit
decisions. For implementation of Banks policy guidelines on risk
management the operational wings are provided with training inputs.

Bank has developed in-house Credit Rating models and minimum standards
have been set for all new accounts, green field accounts and take-over
accounts. The Bank has put in place Rating based discretionary powers
for sanctioning of credit proposals. In addition, New Business
Committee at Zonal level and Corporate level accord clearance from
industry and group angle for new proposals.

All accounts with Banks exposure above Rs. 25 lakhs are rated
internally and such rating forms an integral part of our sanction
process. Further, rating of borrowal accounts are done by person(s) who
are not associated with sanction of credit proposals or its processing.
All credit proposals beyond a cut- off point require approval of
Credit Appraisal Grid prior to being placed before sanctioning
authority.

Accounts with exposure less than Rs. 25 lakhs are rated internally on
Pooled Asset basis.

TOO per cent of Banks credit portfolio stands rated internally. The
internal rating module is robust and the results of internal rating
compare well with those of the regulatory approved external rating
agencies.

During the year, 64 per cent of our credit portfolio with exposure of
Rsl 0 crore and above were externally rated. Around 45% of credit
portfolio of RslO crore and above were rated A or above by one of the
four rating agencies approved by regulatory authority viz., CARE,
CRISIL, FITCH and ICRA. Portfolio quality and portfolio performance
are monitored zone- wise. Rating-wise distribution of zonal credit
portfolio is also monitored.

Pricing Policy is set by Asset Liability Management Committee of the

Bank which decides the pricing within the overall framework of policy
guidelines. The Bank has in place market linked pricing system for LC
Bills discounting.

Credit audit of accounts with exposure of Rsl 0 lakhs and above are
undertaken within a reasonable period after sanction, and appropriate
measures are taken wherever required.

Market Risk
The Asset Liability Management (ALM) Committee of the Bank assesses
Liquidity Risk and Interest Rate Risk of the Bank. Structural
Liquidity Returns and Interest Rate Sensitivity returns are helping
tools towards this end. Earnings at Risk is also estimated every
month to assess the impact of interest rate changes in the earnings.
The Bank also estimates VaR of its equity on a regular basis.

ALM model developed in-house is an aid towards generation of Structural

Liquidity, Interest Rate Sensitivity and Earnings at Risk from the base
data. These returns also support decisions for funding or deployment as
the case may be, by the ALM Committee.

Additionally, the Bank takes a view on Interest Rate and Exchange Rate
every month. These views are also made available to the Operational
wings.

The Bank has in place Modified Duration Gap analysis for ALM purpose.
The Bank assesses Value at Risk (VaR) on the standard Investment
 Portfolio (excluding equity and Mutual Funds) on a daily basis. Back
testing of the VaR result is also being carried out regularly.

Mid-Office reporting on PSU Bonds, SLR Investments, Investment in

debentures and equity has been stabilized.

Operational Risk
The Bank has put in place its Operational Risk Management Policy. In
terms of the policy, it has also established a framework to
systematically track, collect and analyze the data on individual
operational risk loss events.

The Bank has been collecting relevant data under different loss event
types as also different business lines (as per BASEL- II) under the
framework since 1, April 2006 to develop a model to estimate capital
requirement on account of operational risk.

SUPERIOR EFFICIENCY OF UCO BANK

10. Non-Performing Assets

There has been considerable reduction in the percentage of Gross NPA to

Gross Advances from 2.97 per cent in the year 2007-08 to 2.21 per cent
in the FY08-09. The Gross NPA of the Bank as on 31.03.2009 stood at
Rs. 1 539.51 crore. The highlight of the year has been very good
recovery performance both in cash recovery as well as through
up-gradation. The total cash recovery and upgradation during the
FY08-09 has been Rs. 675.71 crore as against Rs. 582.94 crore in the
year 2007-08. The total reduction in NPA during the FY08-09 was Rs.
778.97 crore. The position of NPAs during the FY08-09 at overseas
centres of the Bank continued to be nil. The percentage of Net NPA to
Net Advances of the Bank continued to show decline and as at the end of
March, 2009, NNPA ratio stood at 1.18 per cent against 1.98 per cent as
of March, 2008.

During the FY08-09, the recovery from Written-off Accounts continued

to be good and the Bank recovered an amount of Rs. 77.76 crore.