At a time when public sector banks are reeling under mounting asset quality pressure, Mumbai-based Union Bank of India has decided to strengthen its loan recovery mechanism, to keep non-performing assets (NPAs) under check. The mantra is simple: Maintain recoveries and upgrade at a higher level than incremental slippages.
Implementation of this strategy to ensure a steady flow of recovery is, however, a tedious job. So, the bank has decided to implement a system, what it terms a ‘daily mock run’ of recovery, upgrade and slippage numbers.
All nine zones of the bank have daily targets of these three parameters. At the end of the day, all nine zone heads have to report the number via text messages to the chairman of the bank. An overall report is generated the next morning and new targets are given, based on the previous day’s performance.
| BALANCE SHEET Union Bank of India (in Rs cr) | |||
| Quarter ended figures | Sep '11 | Sep '12 | % change |
| Interest earned | 5,110.44 | 6,109.83 | 19.56 |
| Other income | 500.93 | 545.83 | 8.96 |
| Operating expenses | 4,406.31 | 5,383.01 | 22.17 |
| Net profit | 352.52 | 554.56 | 57.31 |
| Net interest margin (%) | 3.21 | 3.02 | - |
| Provision coverage ratio (%) | 60.52 | 61.45 | - |
| Net NPA (as % of adv) | 2.04 | 2.06 | - |
| Total deposits | 1,95,572 | 2,26,095 | 15.61 |
| Total advances | 1,47,284 | 1,76,671 | 19.95 |
| Source: Capitaline Compiled by BS Research Bureau | |||
In case a zone head fails to give a report on a day, a mail is sent from the chairman’s office the next day, reminding him of the daily exercise.
“We look for an early signal to know whether the quality of the asset is deteriorating. If a payment becomes overdue for more than a month, we start follow-ups immediately and do not wait for 90 days for the actual slippage to happen,” said D Sarkar, chairman and managing director of Union Bank of India, who took charge of the bank in April this year.
“This sometimes helps make the account regular within the 90-day period. Since the follow-up is started early, even an account slips to NPA after 90 days, the chance of the asset getting upgraded over the next quarter becomes high,” he added.
The efforts were paid off. During the second quarter of the current financial year, while slippages were Rs 792 crore, recoveries and upgrades were Rs 627 crore, which, along with Rs 236 crore write-offs, helped the bank lower gross and non-performing figures sequentially, albeit marginally.
Gross NPAs of the bank fell to 3.66 per cent at the end of September from 3.76 per cent of June-end. Sarkar said the bank aimed to reduce the gross NPA ratio to three per cent by the end of the current financial year. Investors have not missed the bank’s drive to contain bad assets in an uncertain economic environment. The bank’s stock has surged after it announced the second quarter earnings in October. Union Bank’s stock rose 24 per cent since November 1, compared to a nine per cent rise of the Bankex and a 4.5 per cent rise of the Sensex.
“The management expects the run-rate of slippages per quarter to decline to Rs 600-800 crore, which would largely be offset by recoveries and upgradation of Rs 500 crore, whereby gross NPAs would be largely flat,” said Motilal Oswal in a report.
The net loan dues (excluding those of Air India and state electricity boards) was the lowest among its peers, the report said.
The bank has given certain powers to field managers to write off small accounts if the amount is not recoverable and is not backed with any asset. The field managers are also encouraging small borrowers for one-time settlements schemes.
“Union Bank has reported improved asset quality performance during the last quarter primarily on the back of large corporate recoveries,” said Espirito Santo Securities. However, the brokerage added it expected asset quality to remain volatile in the near term, considering its concentration in large corporate entities.
The bank’s emphasis on asset quality can also be seen from its efforts to increase the provision coverage ratio, at a time when most public sector lenders have lowered it to maintain profitability.
In September, the provision coverage ratio of the bank improved to 61.5 per cent from 59 per cent of the previous quarter. “We will increase our loan loss cover to 70 per cent by March-end,” said Sarkar.
