High inflation and increased interest rates are taking a toll on the credit demand. However, public sector lender Union Bank of India (UBI) continues to focus on key growth areas in farm and consumer sectors. In his recent visit to Ahmedabad, M V Nair, chairman and managing director, UBI shared the bank's plans for current fiscal and impact of current economic condition on industry with Rutam Vora. Excerpts:
What are your plans for Gujarat in the current fiscal?
Gujarat is an important state for our business. With a focus to increase agricultural lending in the state, we are opening up a regional office in Mehsana, fifth in the state after Ahmedabad, Vadodara, Rajkot and Surat. We will also open 42 branches in the state during the year with four branches exclusively dealing in Financial Inclusion. This will increase our total branch network in Gujarat to 269. Our ATMs network to rise to over 170 ATMs with addition of 123 ATMs during the year. While agricultural lending in state is expected to grow by 25 per cent in the current fiscal, we expect about 17 per cent growth in the total business in Gujarat.
Elaborate more on the initiative of Financial Inclusion Branches by the bank?
The financial inclusion (FI) branches would take care of our targets for financial inclusion as well as it would also provide other facilities like passport updation, FDs etc. Each branch will have 20 business correspondents (BC) under it. We have been allotted 135 villages having population of over 2000 for coverage with banking facilities by March 2012. Of these, 110 villages have already been covered through BCs and two FI branches. This is for the first time we are launching FI Branches in India and once successful, we plan to open 100 such branches across the country during the current fiscal.
How do you see your operations growing in Gujarat?
We are seeing robust growth from our Gujarat operations. However, much of the loan disbursements for Gujarat happen from our Mumbai region due to many companies having their offices in the financial capital of India. This is the reason why we have lower growth in loans than deposits. Our credit-deposit ratio in Gujarat till June, 2011 stood at 49 per cent, which we target to take up to 60 per cent by the year-end. In past two years, the deposits are growing faster than credits.
Being a public sector bank, our focus area will not be restricted to a profitable loans, hence we would focus on all segments including micro-small and medium enterprises (MSME), agriculture, retail and large corporate.
How do you see high interest rate regime affecting credit demand?
The inflation has been a major concern at present. The Reserve Bank of India (RBI) has taken several policy measures to bring down inflation including repeated rate hikes in the key rates. Overall, the interest rates have almost peaked but looking at the persistently high inflation, we can not rule out another round of a 25 basis points hike in the key rates.
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High interest rates has affected demand in the retail loan segment, especially in the housing, auto and consumer sector. But we are hopeful for overall inflation to come down to about 9 per cent by November 2011 and 7 per cent by March 2012. Once inflation cools down, we can see some downward revision in the key rates by the RBI.
In current high interest rate regime, which are the sectors you consider promising for growth?
The credit demand is badly affected due to high interest rates. The industrial credit especially for the new projects may be affected, but we see sustained growth in farm sector. The monsoon has been good and we are increasing our reach in the rural area, hence we see potential there. Also, credit demand from MSME sector is also expected to be robust during the year.