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D Sarkar, chairman and managing director of Union Bank of India who will retire at the end of this month tells Manojit Saha that since the bank has adopted system driven identification of non-performing assets, negative surprises on the asset quality front is not a likely scenario.
The common trend in public sector banks is that when a chairman retires, NPAs zoom. Why do you think your successor will not face the same situation?
I think the statement is not very correct and does not acknowledge the reality of banking business. The business of finance is greatly influenced by social, economic and political conditions in which entities operate. Therefore, such generalisation, based on perceptions should not be made. When asset quality recognition is automated in banks and undergoes rigorous checks by the auditors, it is improper to blame the rise in NPAs on change in management.
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Our approach has been consistent and in sync with regulatory guidelines when it comes to classification of assets. Moreover, you will appreciate that Union Bank of India has migrated to system-based recognition of NPAs. The increase in non-performing assets of banks is indeed a concern, but the same should be seen in perspective of not-so-benign operating environment within India and outside which adversely impacts the borrowers.
How long do you think asset quality pressure will continue?
I wish I could give a definitive timeline. As you know, deteriorating asset quality of banking industry is intricately linked to the growth slowdown in the economy. Investment pipeline, completion of stalled projects, establishing input linkages and fast tracking decision making are required to a pull together in order to lift level and direction of activity in economy.
Encouragingly, regulatory blockades are being removed with priority and many large ticket investment proposals, as cleared by cabinet committee on investments (CCI), are expected to turn into actual investments sooner.
However, the revival in the economic activities is a pre-requisite for sustained lowering of bad assets. We are increasingly spotting green shoots of recovery in the recent release of data, like exports, IIP, farm activities, etc. However, it is still early to say these are going to make a definitive up-trend. Interest rate stance of the RBI is also a key factor in determining the debt servicing by borrowers.
Meanwhile, there is better sensitisation on maintaining quality through better loan origination, monitoring, follow-up and recovery by the Banks. Regulatory nudges are there to dispel laxity, if any, on part of bankers. However, the larger picture still remains about not-so-warm outlook on asset quality in the near future.
How has been the recovery performance of the bank? Do you think, the bank will have more recovery than slippages in the current financial year?
Recovery of bad loans continues to be a focus area. The Bank has a separate department which closely monitors the recovery across the business units. Total recovery for H1 FY14 was Rs 1,378 crore. My sense is that as economic and business conditions improve, recovery rate will also increase.
What is the pipeline on restructuring assets?
Likely pipeline for restructuring of assets for current quarter is around Rs 3,500 crore. This includes Rs 1,500 crore for SEBs. There is no sector specific concentration of restructuring pipeline and the probable accounts are spread across sector like EPC contractors, pharma, iron & steel etc.
The government has said that it will provide additional capital to the banks based on the performance of retail credit? How has been the bank's performance so far?
As per communication from the Government of India (GoI), the Bank will get capital in the ratio of 10:1 for incremental advances made to select categories of retail loan advances during October 2013 to January 2014. It means for advances of every Rs 100, the Bank will get a capital of Rs 10 from the GoI. We have reduced rates on select categories and made some combo loan offers attractive. We hope to increase lending to these sectors.
However, the capital received through this route will be nominal. The Bank requires a huge sum of core equity capital in run up to complete transition to Basel 3 framework and therefore, government needs to provide significant amount of capital. This year, the government has decided to infuse Rs 500 crore of equity capital in the Bank.
What kind of loan and deposit growth you see this fiscal? What is guidance on margin?
Our guidance is that deposits and advances may grow at the rate of 15% and 16% respectively in FY14, much in line with SCBs expected growth during the year. As for resource mobilisation, our efforts are on mobilising stable and low cost deposits, particularly CASA, in the remaining part of the financial year. In advances, our focus sectors include MSME, Retail and Agricultural sectors. Most of the growth in the remaining period of this financial year is expected to occur in these sectors.
There are challenges in terms of margin protection. However, we are hopeful of maintaining NIM of about 2.60% for FY14.
What are the unfinished tasks?
There is a lot being done and lot to be done which a Chairman will like presiding over from inception to the fruition, even within a short term of over six quarters like mine. I see potential in the Bank to be among the best in its chosen areas. Bank’s 34,000 employees have indeed been pursuing the goals with unwavering commitment and zeal.
We have achieved a business mix crossing Rs 5 lakh crore notwithstanding a challenging business environment. Moreover, we keep an expansionary outlook, in terms of business as also the network strength in terms of branches, domestic as also international, ATMs and other alternate channels of service delivery. However, while we pursue expansion, we have to be growing profitably. There is a constant focus on strengthening capacity to serve this vision.
As I have alluded earlier, asset quality concerns are still not behind and indeed warrant a doubling of efforts to contain and reverse the decline.
Next, we look forward to expanding our successful financial inclusion model of ‘Meaningful Financial Inclusion’ where the focus is on need creation in sync with opening accounts and increasing transactions in the newly opened accounts.
When are you planning to introduce sunset clause on BPLR loans?
BPLR linked loans is already less than 5% of the Bank’s total loans. We are constantly engaging the borrowers, who are still linked with BPLR system, about moving to Base rate. Many borrowers are convinced as the effective rate is lower for the Base Rate linked advances compared to BPLR linked advances. Pushing unilaterally will be inappropriate as these are regulatory issues. Once regulator gives guidelines regarding this, we will implement the same.
