The ride hasn’t been smooth for M V Nair. When he retires from Union Bank of India tomorrow after a six-year stint, many would argue that he is leaving the state-owned entity much weaker.
The reasons: Moody’s recent downgrade due to weak asset quality and the bank’s inadequate cover for bad loans. Its BFSR (bank’s financial strength rating) was cut from “D+” to “D”. Rating for global local currency deposit was cut to “Baa3/Prime-3” from “Baa2/Prime-2”.
But Nair says the rating agency has not taken the latest numbers into account. Saying that Moody’s is behind the curve, he explains that it has not factored in an improvement in the bank’s financial health in the December quarter. “Recoveries have improved substantially in this quarter,” he adds.
The coverage ratio for non-performing assets (NPAs) increased in December 2011 to 63.14 per cent (70.2 per cent in year ago) from 60.52 per cent in September 2011. It is expected to rise hereafter to touch 66 per cent by end-March.
Similar is the story in case of the gross NPA ratio. It declined in December to 3.33 per cent after a peak of 3.49 per cent in September 2011. It will fall below three per cent at the end of March 2012. The return on assets would move back to 1.25-1.30 per cent range. “I am leaving a bank which is strong,” asserts Nair, 60.
But while the NPA numbers have improved in December, it reached a peak during his tenure as well. A senior official with the city-headquartered bank explains that this sudden spurt was due to the recognition of the quality of assets based on system cues. They, he adds, showed it had many more small-ticket accounts as NPAs than what was being indicated by the manual system. “In fact, this has been a problem being faced many other public-sector banks by including the country’s largest State Bank of India (under Pratip Chaudhuri’s regime),” the official notes. Also, new wage settlements pushed employee costs and put pressure on the bottom line.
Another problem that the 1919-registered Union Bank is grappling with is a low share (32-34 per cent) of CASA (current and saving accounts) — low-cost money — compared to its peers. But Nair is quick to defend this, too. “Competing banks have lost seven-six per cent in last five years, while Union Bank has been able to protect the share of low-cost deposits,” he reasons.
With ground work, such as better recoveries and capital infusion by the government, the bank is now ready to get back on a high-growth trajectory. It has positioned for 2020 to cater to three distinct classes of customers: nextgen, new bankable class and the large existing pool.
| BANK BOOKS | ||||||
| 2006-07 | 2007-08 | 2008-09 | 2009-10 | 2010-11 | 2011-12* | |
| Gross NPAs (%) | 2.94 | 2.18 | 1.96 | 2.2 | 2.37 | 3.31 |
| Return on Assets | 0.92 | 1.26 | 1.27 | 1.25 | 1.05 | 0.35 |
Bhavesh Kanani, banking analyst, Centrum Broking Ltd, says the bank’s performance has stabilised in terms of NPAs as well as interest margins. But it is not out of the woods yet, because the outlook for business environment and economy remains a matter of concern.
Further, the ratio of the market PBV (price-to-book value) seems to capture the perception. At present, it is lower than its public-sector peers. Bank of Baroda has a PBV of 1.4 followed by Bank of India (1.17). Then comes Union Bank of India — at 1.07..
Mangalore-raised Nair, as one of the longest-serving bank chairmen in the country, took over the post in April 2006. While the building blocks for “Vision 2020” have been put in place, there are a large number of unfinished tasks.
Starting the wealth management business and general insurance to increase cross-selling were two ventures he would have liked to see going onstream. Maintaining a high profitability trend is another thing he would have liked to implement successfully. But the adverse fallout of a global financial crisis forced the bank to step back from high-growth trajectory in early 2010. It took an 18-month pause to consciously moderate business growth.
“It was a tough decision,” says Nair, a native of north Malabar. “For, in the immediate past, the bank exhibited super performance by growing its business by almost five per cent higher than the industry.”
His successor, meanwhile, will hope that the sector, as well as the bank, is out of the woods sooner than later. And that a better economic situation will help.
