 "There is space for rate transmission of 15-20 basis points: Pawan Bajaj")
In 2013, when public sector banks were reporting healthy profits, United Bank of India reported abysmally high non-performing assets (NPAs), leading to lending curbs by the Reserve Bank of India (RBI). In the quarter ended June 2016, United Bank returned to profitability when some of its peers were still in the red. In an interview with Namrata Acharya, Pawan Bajaj, the bank’s new managing director and chief executive officer, says he expects the bank could achieve the credit growth target of 10 per cent or more this year. Edited excerpts:
You assumed charge at a time when the banking sector was undergoing a lot of stress. In this backdrop, what is your vision for United Bank of India?
Whatever is happening in the banking sector is mostly common for all banks. However, at United Bank of India, problems started a long back. But things have stabilised now. In other banks, problems started only recently, and it will take more time for other banks to stabilise. I feel UBI is now on a strong footing and we can concentrate on increasing business.
With AQR (asset quality review) and other provisioning already made, we should stabilise in the profit zone. My first priority is to stabilise the continuity of profit and then go for business growth. Most of our branches are in the east, where the credit offtake is not much because it is not an industrial belt. So for higher business, we are required to open branches in other states. This is not the time to do it immediately. We will do it after six months.
What kind of credit growth are you expecting?
We are projecting credit growth of 8-10 per cent. Depending upon the situation, we may also go for a 15 per cent growth.
Do you envisage any further capitalisation for meeting Basel-III norms?
We are getting Rs 810 crore as capital from the government. With that, we will be able to meet the regulatory CRAR requirement by March 2017. Additionally, along with the capital, with whatever fresh recovery we do, we will be able to increase business also.
Will you be cautious in lending to any particular segment?
We will extend credit only to triple-A- and double-A-rated accounts. Our portfolio will be well spread across good industries. We will be very cautious in infrastructure and power sectors. Power and infrastructure sectors are still not out of the woods. Cash flows are not allowing them to pay on time.
Do you see more slippages in the power and infrastructure sectors in the present quarter?
UBI has not done any fresh lending to the two sectors for the last few years. Our exposure to these are all old accounts, which have been taken of care by AQR.
In which sectors do you expect credit growth and how is corporate lending picking up?
We are focusing on retail, MSME lending, and government schemes backed by credit guarantee schemes. After the Seventh Pay Commission, we expect higher lending in consumer durables, housing, vehicle loan segments. Corporate lending we are not seeing any fresh demand. No one is going for further expansion.
What is your outlook for the NIM?
A lot of liquidity is available in the market. There will be pressure on NIM. We will have to focus on other income. We will focus on third-party business. We recently discussed if we can start gold business. Jewellers require gold on a loan basis, so a lot of potential exits.
What quantum of NPAs are you looking to sell to ARCs this year?
We are seeing not more than Rs 1,500-2,000 crore of sale of assets to ARCs this year.
What is your view on merger of banks?
I think it is a good strategy. Having so many banks in one particular region is not required. Everyone is doing the same thing.
Do you expect lending rates to come down?
Earlier, when the MCLR (marginal cost of funds-based lending rate) was set, 10-year G-sec yield was around 7.32-7.33 per cent. Now it is around 7.09 per cent. We can have a rate transmission to the customer by around 15-20 basis points. We are watching the market, we will think of that. There is already scope for reducing rates on deposits by 20-25 basis points.
You assumed charge at a time when the banking sector was undergoing a lot of stress. In this backdrop, what is your vision for United Bank of India?
Whatever is happening in the banking sector is mostly common for all banks. However, at United Bank of India, problems started a long back. But things have stabilised now. In other banks, problems started only recently, and it will take more time for other banks to stabilise. I feel UBI is now on a strong footing and we can concentrate on increasing business.
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So can we say the worst is over for UBI?
With AQR (asset quality review) and other provisioning already made, we should stabilise in the profit zone. My first priority is to stabilise the continuity of profit and then go for business growth. Most of our branches are in the east, where the credit offtake is not much because it is not an industrial belt. So for higher business, we are required to open branches in other states. This is not the time to do it immediately. We will do it after six months.
What kind of credit growth are you expecting?
We are projecting credit growth of 8-10 per cent. Depending upon the situation, we may also go for a 15 per cent growth.
Do you envisage any further capitalisation for meeting Basel-III norms?
We are getting Rs 810 crore as capital from the government. With that, we will be able to meet the regulatory CRAR requirement by March 2017. Additionally, along with the capital, with whatever fresh recovery we do, we will be able to increase business also.
Will you be cautious in lending to any particular segment?
We will extend credit only to triple-A- and double-A-rated accounts. Our portfolio will be well spread across good industries. We will be very cautious in infrastructure and power sectors. Power and infrastructure sectors are still not out of the woods. Cash flows are not allowing them to pay on time.
Do you see more slippages in the power and infrastructure sectors in the present quarter?
UBI has not done any fresh lending to the two sectors for the last few years. Our exposure to these are all old accounts, which have been taken of care by AQR.
In which sectors do you expect credit growth and how is corporate lending picking up?
We are focusing on retail, MSME lending, and government schemes backed by credit guarantee schemes. After the Seventh Pay Commission, we expect higher lending in consumer durables, housing, vehicle loan segments. Corporate lending we are not seeing any fresh demand. No one is going for further expansion.
What is your outlook for the NIM?
A lot of liquidity is available in the market. There will be pressure on NIM. We will have to focus on other income. We will focus on third-party business. We recently discussed if we can start gold business. Jewellers require gold on a loan basis, so a lot of potential exits.
What quantum of NPAs are you looking to sell to ARCs this year?
We are seeing not more than Rs 1,500-2,000 crore of sale of assets to ARCs this year.
What is your view on merger of banks?
I think it is a good strategy. Having so many banks in one particular region is not required. Everyone is doing the same thing.
Do you expect lending rates to come down?
Earlier, when the MCLR (marginal cost of funds-based lending rate) was set, 10-year G-sec yield was around 7.32-7.33 per cent. Now it is around 7.09 per cent. We can have a rate transmission to the customer by around 15-20 basis points. We are watching the market, we will think of that. There is already scope for reducing rates on deposits by 20-25 basis points.