UBI plans facelift, eyes 25% growth in FY08

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Your business target for this year at 25 per cent looks ambitious compared to a 15 per cent growth last year. Are you confident of achieving the target?

We took a conscious decision to slow credit in the second half of 2006-07, anticipating a pressure on liquidity. This year, the Reserve Bank of India (RBI) is also targeting a growth of 24-25 per cent in credit, we are in line with that.

If we are to grow credit at this level, we need to grow deposits at 23 per cent. This year we hope to grow our core deposits (retail deposits and term deposits at card rate) at over 25 per cent. However, moving to a 25 per cent growth from 15 per cent is tough.

Therefore, we are looking to completely change the strategy. We have identified 1,000 of our 1,200 urban branches to focus on liability-related (deposits) and third-party products.

We will hive off lending from these branches. The branches will just generate the lead, and the (retail) loan requirements will be met by our central processing offices (CPOs). We plan 35 such CPOs, of which eleven are already running.

The other 200 urban branches would focus on small and medium enterprises (SMEs), mid-corporates and corporates.

Now that these branches will no longer offer loan products, how are you going to attract more customers?

We will look to transform these branches into a store with a standard look and feel. This will give the customer an experience superior to competition. We will start with 150 new branches this year and another existing 100 branches will be shifted to a better location. The branches will connect mainly with the young, high net worth, affluent customers.

We have engaged Boston Consultancy Group to develop the sales force management technique. We will have 1000 people in sales and are looking to recruit 500 marketing officers.

What is the mix of fee income and interest income that you are targeting?

We expect fee income to cross 15 per cent out of the total income by 2010, from around 10 per cent now, with growth mainly coming from non-credit related income like processing charges, advisory, recovery from written-off accounts, insurance and mutual funds. Credit-related fee income involves a capital component.

The bank internally has looked at 15 areas like forex remittance, commodity exchanges, derivatives, BPO or call center, which will augment fee-based income.

With a corporate pipeline of $500 billion, what will be your strategy to tap this growth opportunity?

The dependence of corporates on bank finance is coming down. They need more structured finances and advisory-related activities and we are preparing in that direction.

We will have 30 relationship managers for the corporate segment. Our coming together with the Bank of India for loan syndication will also help in down selling and syndicating projects of larger size.

We are trying to open a branch in Hong Kong. Unless you open an international branch it limits your ability to source finance globally and you are required to pay withholding tax. We will also look at funding Indian corporates for acquiring companies abroad, which we do not do at the moment.

With a strategy to reach customers through IT-based channels, has the branch expansion moved into lower gear?

We will look at further expansion in the north-east. Earlier, we opened 30-35 branches every year, last year, we opened 125 branches and we plan adding 150 branches every year over the medium-term.

Last year, you entered into an arrangement with the Bank of India for joint co-operation in various areas. What has the progress been?

There has been good progress. Loan syndication is happening continuously. Risk sharing is our first preference. We are also offering cheque collection facilities in 1000 branches of each bank. We are also uniquely positioned as the technology platform is the same.

With regard to foreign operations, a team is working to operationalise three centres globally, including in Japan. We will avoid opening our international branches in locations where Bank of India is already present, as opening international branches involves capital commitments and huge investments.

Training systems are very strong in both banks. Each of us have eight training centres, so we save on costs also.

How is Union Bank placed against the consolidation in the banking industry which is expected to gather momentum, especially with the implementation of stringent Basel II capital norms?

The requirement for capital and opening up of the banking sector in 2009 should act as a trigger for consolidation in the industry. However, preparation for capital is the most important part. Secondly, the model for growth is important. If you want to be a global bank, you need to be in the top five. The next eight will be banks with a national presence.

Adding 150 branches a year, can help you become a national bank. However, to be a global-sized bank you would need to amalgamate with an equal-sized bank. We have systematically positioned ourselves to be a national-sized bank. If the opportunity comes, it is advisable to become a global bank. We will have to wait and see how the industry moves.

Keeping the growth prospects in the mind, where do you see the bank by 2012?

Capital is king. The implication of Basel II guidelines will determine the growth rate. If we record a minimum growth of 25 per cent, the thumb rule is that your balance sheet size should double in three years. So by 2011, our business should be Rs 3,70,000 crore from about Rs 1,48,800 crore now, and by 2012, another 25 per cent increase would mean a business of Rs 5 lakh crore in the normal course.