 "Our objective is to identify stress as early as possible: P Srinivas")
P Srinivas was appointed managing director (MD) and chief executive officer (CEO) of United Bank of India on December 31, following the government’s decision to split the post of chairman and managing director (CMD) in four public sector banks (PSBs). He has assumed charge of the Kolkata-based lender at a time when it is mending its deteriorated credit quality. Excerpts from an edited interview with Somasroy Chakraborty:
You are one of the first MD & CEOs in a public sector bank. How is this role different from a CMD?
It was felt the board of a PSB needs to have an independent view of the activities. It can then direct the bank appropriately and monitor the performance more efficiently. If one person is giving directions and also implementing those, there could be a conflict of interest. This is the way private banks also function. In a way, it helps the MD to concentrate exclusively on implementing the board’s directives. But as on date, United Bank of India does not have a chairman. So, I am handling both roles.
Prior to this, you were with Bank of Baroda, much bigger in size. Will you adopt a more calibrated approach to grow the business?
I started my career with Andhra Bank, also a relatively small-sized one. Despite its size the growth in Bank of Baroda was not aggressive; it was carefully calibrated.
At present, bankers cannot afford to be aggressive; the economy is not permitting you to be so. At United Bank of India, we will probably have to be more careful because there are certain constraints – we have a capital issue, a bottom line issue and high NPAs (non-performing assets). Hence, we are more cautious while doing business.
What needs to be done to improve UBI’s asset quality?
All PSBs are facing the problem of NPAs. For United Bank, the problem appears bigger because of our small base.
My advances portfolio is small; hence, the NPA ratios appear large. There are two ways of sorting this out: Step up recovery efforts and reduce fresh slippages.
We have stepped up our recovery, most of the low-hanging fruits have been picked and we now need to focus more on the critical cases. Also, we need to minimise slippages as much as possible. We are closely monitoring the performance of our branches. Our objective is to identify stress as early as possible, even for small loans. For instance, if a Rs 25-lakh loan is overdue for 30 days, we will want to start monitoring that account.
Will the bank reconstitute its grievance redressal committee on wilful defaulters and re-initiate action against Kingfisher Airlines?
The Calcutta High Court has ruled in favour of Kingfisher (against United Bank’s decision to declare it a wilful defaulter). We will appeal against that order. Legally, we have an option. If that gets exhausted, we will decide accordingly.
Has the bank identified any other corporate group as a wilful defaulter?
It (declaration of wilful defaulter) depends on the evidence we have. In certain cases, we are only small partners and do not have sufficient evidence to so declare the borrower. We follow the Reserve Bank of India’s guidelines and initiate action appropriately. Ultimately, our primary motive is loan recovery and we will leave no stone unturned to recover our money.
You are one of the first MD & CEOs in a public sector bank. How is this role different from a CMD?
It was felt the board of a PSB needs to have an independent view of the activities. It can then direct the bank appropriately and monitor the performance more efficiently. If one person is giving directions and also implementing those, there could be a conflict of interest. This is the way private banks also function. In a way, it helps the MD to concentrate exclusively on implementing the board’s directives. But as on date, United Bank of India does not have a chairman. So, I am handling both roles.
Prior to this, you were with Bank of Baroda, much bigger in size. Will you adopt a more calibrated approach to grow the business?
I started my career with Andhra Bank, also a relatively small-sized one. Despite its size the growth in Bank of Baroda was not aggressive; it was carefully calibrated.
At present, bankers cannot afford to be aggressive; the economy is not permitting you to be so. At United Bank of India, we will probably have to be more careful because there are certain constraints – we have a capital issue, a bottom line issue and high NPAs (non-performing assets). Hence, we are more cautious while doing business.
What needs to be done to improve UBI’s asset quality?
All PSBs are facing the problem of NPAs. For United Bank, the problem appears bigger because of our small base.
My advances portfolio is small; hence, the NPA ratios appear large. There are two ways of sorting this out: Step up recovery efforts and reduce fresh slippages.
We have stepped up our recovery, most of the low-hanging fruits have been picked and we now need to focus more on the critical cases. Also, we need to minimise slippages as much as possible. We are closely monitoring the performance of our branches. Our objective is to identify stress as early as possible, even for small loans. For instance, if a Rs 25-lakh loan is overdue for 30 days, we will want to start monitoring that account.
Will the bank reconstitute its grievance redressal committee on wilful defaulters and re-initiate action against Kingfisher Airlines?
The Calcutta High Court has ruled in favour of Kingfisher (against United Bank’s decision to declare it a wilful defaulter). We will appeal against that order. Legally, we have an option. If that gets exhausted, we will decide accordingly.
Has the bank identified any other corporate group as a wilful defaulter?
It (declaration of wilful defaulter) depends on the evidence we have. In certain cases, we are only small partners and do not have sufficient evidence to so declare the borrower. We follow the Reserve Bank of India’s guidelines and initiate action appropriately. Ultimately, our primary motive is loan recovery and we will leave no stone unturned to recover our money.
UBI is also facing a problem of low capital. Do you plan to raise money in the near-term?
At present most banks depend on plough back of profit to meet capital requirements. Since we incurred a loss last year, our net worth eroded. But we have a number of options. We have Rs 525 crore PNCP (perpetual non-cumulative preference) shares, which we can convert into equity. That will meet our capital requirement for the current year. Also, I am expecting some amount of capital infusion from the government. We also have substantial room for dilution of the government's shareholding. But we will have to do it at an appropriate time, at a good valuation. So, I don't think the bank will face any great difficulty because of capital.
Will the bank continue to focus on retail and SME advances for its business growth?
The present economic situation does not permit you to grow aggressively. There are not many large-ticket loan proposals. We have a strong presence in the eastern and north-eastern region where agriculture lending is predominant. So, that is our strength. Also, retail lending is now picking-up. We have taken a number of steps to improve our retail credit – set up a back office, centralised the sanctioning of retail housing loans, lowered the interest rate on home loans to base rate, etc.
Another important area is SME though our NPAs in this segment are slightly higher when compared to the banking industry. While we need to be more cautious, we want to grow this portfolio. We want to have a back office, centralised loan appraisal system, closely monitor the loan appraisal process and improve the turnaround time. SMEs worry more about turnaround time than interest rates. So, what we are focusing on is a large number of small loans, not more than Rs 30-40 crore. That will help us disburse the risk and reduce slippages.
RBI had put a cap on UBI's loan sanctioning power. Have you requested the regulator to lift the cap?
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There is some leeway. For instance, the cap is Rs 200 crore for top rated companies, which is substantial. For companies with lower credit ratings we can disburse three times of our recovery. But I may have to seek the management committee's permission for sanctioning of these loans. We have requested RBI to re-look this. We are confident that things will improve over time.
You have decided to cut your base rate. With interest rates easing now, do you expect pressure on your net interest margin (NIM)?
We have around 40% of our deposits in savings accounts. We still see a lot of opportunity in improving our low-cost deposit base. We currently offer the lowest rate of interest on one-year retail term deposits and have also reduced our high cost bulk deposits. In last one year, we have been able to bring down our resource cost sufficiently. This has allowed us to finance at reasonable interest rate. For us, the margin pressure is primarily due to NPAs. Our NIM is currently at 2.2-2.3%. Our aim is to improve it to 2.5%.
Do you expect RBI to cut rate again on February 3?
I don't think there will be a rate cut this time. RBI will probably wait till the budget before reducing rates again. From their side they did what was required (by lowering the repo rate by 25 basis points on January 15). We have also reduced our base rate. Now, I expect them to wait. There is always a lag effect for transmission and they may take a pause for that to happen.