Will step up recoveries, increase provisions in H2: Union Bank of India CEO

The outstanding NPAs in large corporate category have declined while that of MSME rose marginally, says CEO Rajkiran Rai

The September quarter saw an uptick in slippage in the micro, small, and medium enterprises (MSMEs) and agriculture loans. Union Bank of India Managing Director and Chief Executive Officer RAJKIRAN RAI G tells Nidhi Rai about the lender’s plan to recover loans and how it envisages the asset quality after merger. Edited excerpts: 

There is a slight increase in your non-performing assets (NPAs) from agri and medium and large industry. What is the reason, and what is the outlook on these? 

The outstanding NPAs in large corporate category have declined while that of MSME rose marginally. The increase in outstanding NPAs in agriculture sector is higher than that of the previous quarter, and concentrated in a few geographies.  We have put in place robust monitoring systems to proactively prevent new slippages and are positive on recoveries in the coming quarters. 

Large borrowers’ exposure has come down substantially. Are you being conservative in your approach? 

The decline in exposure to large borrowers was marginal and limited to specific sectors. Apart from construction and trade, which saw a slight decline, exposures in all other sectors have increased or remain at the same level during the September quarter. 

Credit cost has increased. What’s the reason for this? 

Credit cost up to the June quarter has been in line with our guidance. However, for the September quarter, the bank had to provide higher provisions on accounts identified under divergence and fraud provisioning on one major iron and steel account. We expect our credit cost to be around 3 per cent for this fiscal year due to elevated provisioning for Q2FY20 and other normalised ageing and normal provisioning for fresh slippages in H2FY20.  

How comfortable are you with lending to infrastructure finance, and housing finance firms?  Are you comfortable with the loans you have already given?  

We are very much active in lending to viable infrastructure projects and NBFC/HFC segments. Our exposure to these segments increased, in absolute terms, in the September quarter, while exposure to infra stood above to that of in the June quarter, albeit marginally. We will continue to take exposure in NBFCs, with strong parentage and financials and viable infrastructure projects.   

When most of your peers have pushed their provision coverage ratio (PCR) to near 80 per cent, yours is much low. Does this indicate the remaining two quarters will also be consumed by provisions for bad loans and write off? 

The average PCR of peer PSBs stood at 75 per cent and we are at 67.7 per cent as of the September quarter. For the forthcoming quarters in FY20, we aim to reach the PCR of about 70 per cent by way of providing appropriate provision according to the laid down rules. 

The Supreme Court set aside verdict by the National Company Law Appellate Tribunal in Essar Steel case. How much recovery you are expecting from this case? 

We are expecting recovery of Rs 2,000 crore. On account of this, there will be unlocking of provision to the extent of Rs 850 crore. Besides, there will be positive impact of another Rs 250 crore on profit and loss account of the bank.

Post merger, how do you envisage the asset quality of the merged entity to be like?  

We are just half way in FY20 and it would be too early to comment on the asset quality of amalgamated entity. We, however, shall assess the position at an appropriate time to have a realistic view on business/asset quality of the combined entity. 

How many people you have hired in the past two quarters and how many more you are planning to hire this fiscal year?   

Man power planning is an annual exercise for us. We expect this to be more important and critical considering the amalgamation process that is underway. We need to assess the position, keeping the requirements as a combined entity post merger. We may have a clear view on this aspect probably in the last quarter once we work out finer details.