Union Bank may convert SLR kitty into core loans

Union Bank of India is planning to convert low-yielding short-term loans and excess statutory liquidity ratio securities, aggregating Rs 7,000 crore, into medium/ long-term and working capital loans in the new fiscal as avenues for infrastructure financing are opening up.

"Our reliance on treasury income will come down to a great extent. Since the beginning of the fourth quarter, we have received proposals, among others, for setting up greenfield power projects, upgradation of ports, and building roads. There is a clear indication that the offtake of high yielding advances will improve substantially," V Leeladhar, chairman and managing director, said.

The bank has an outstanding of Rs 4,000 crore in short-term loans and an excess SLR portfolio of Rs 3,000 crore. It is seeking to route these funds into upcoming core sector projects.

Union Bank's advances and SLR portfolio stand at Rs 31,000 crore and a little over Rs 15,000 crore respectively.

Sub-PLR loans and the excess gilt portfolio yield returns of anywhere between 5 per cent and 5.50 per cent. However, lending to core projects could fetch a much higher return of 10.5-11.5 per cent, depending on the tenure.

Financing infrastructure projects could boost Union Bank's net interest margin substantially. Net interest margin of the bank improved by 20 basis points to 3.3 per cent over the last one year as deposit rates came down without advances rate getting adjusted correspondingly downward.

A break-up of the advances portfolio shows that priority sector loans account for half of the total advances; corporate loans (30 per cent); and wholesale trade (20 per cent). Of the total advances, retail advances account for Rs 6820 crore.

The bank expects its operating profits to increase by about 30 per cent to Rs 1695 crore in the reporting fiscal. Last fiscal it had posted an operating profit of Rs 1304 crore.