United Bank of India is facing the twin challenge of slow credit growth and the deteriorating quality of assets. In an interview with T E Narasimhan and Somasroy Chakraborty, the Kolkata-based bank's chairman and managing director, Bhaskar Sen, says the lender has pared its credit growth target and stepped up efforts to improve loan recoveries. Edited excerpts:
Your credit growth has been slow compared to last year. Are you looking to revise your loan growth target for this financial year?
We are seeing moderation in loan demand. Our credit growth was 26 per cent in the last financial year. But so far this year, the growth has been 17 per cent because of a number of factors like uncertain economic conditions and high interest rates. Aggressive lending in the current scenario may not be a wise decision. Initially, our target was 20 per cent growth in advances, but going by the recent trend, and taking into consideration the slowdown in demand, we now expect it to be 15-18 per cent.
The bank's asset quality took a knock in the first two quarters. How do you plan to improve it? Which are the sectors in which delinquency rates are high?
The deterioration in asset quality is seen across the sector. The stress is mostly seen in low-ticket advances, particularly among micro, small and medium enterprises. We are seeing that the cash flows of many of these companies are not able to match the interest outgo. Some of these companies are not able to manage their receivables and handle their inventories properly. Their marketing teams are not strong. Also, their interest payments are increasing, because of the successive rate hikes. As a result, slippages are taking place. We are keeping a close watch on the situation. We have identified stressed assets and strengthened our recovery teams. Going forward, I'm not unduly concerned about our asset quality.
What is your outlook on the net interest margin?
We have been able to improve our margin, despite the increase in deposit rates. We ended the July-September quarter with a net interest margin of 3.16 per cent. We expect it to remain at around three per cent in the current financial year. We have reduced our dependence on high-cost bulk deposits and are focusing on mobilisation of current account and savings account deposits.
Do you plan to raise capital in the near term?
We are comfortable with our capital adequacy ratio, which is currently 12.95 per cent, without taking into account the profits in first two quarters. Government holding in the bank is over 85 per cent. So, we don't expect fresh fund infusion from the government in the near future. We are focusing on improving our internal accruals. Internally, we are also deliberating on the scope for a follow-on public offer. We have not decided on the size of the issue. We would probably tap the market by the end of the next financial year.
