Union Bank sees 21% credit growth

The Union Bank of India is aiming at a 21 per cent credit growth for this financial year, higher than the Reserve Bank of India's (RBI) projected growth of 19 per cent for the banking sector, said K Cherian Varghese, chairman and managing director on Thursday.

The bank sees a deposit growth of 16.5 per cent, which is higher than the RBI's estimated growth of 15 per cent, he said.

The public sector bank's credit grew by 35 per cent and its deposits grew by 22.5 per cent in the last financial year. In June, the year-on-year growth in credit was 28 per cent, while deposits grew by 17 per cent in the same period, Varghese said.

Though the bank's projection of growth in advances and deposits for 2005-06 is lower than previous year, the bank's growth target is higher than industry average projected by the RBI.

"We would aim to maintain our market share and grow more than the industry average projected by the RBI," he said.

On Saturday, finance minister P Chidambaram expressed concern on some of the public sector banks having projected lower advances and deposit growth rate in the current financial year.

The bank would lay equal emphasis on all sectors to drive its credit and deposit growth. The bank also hopes its agriculture credit to grow 35 per cent in the current fiscal. The CMD did not reveal the bank's current plans on mergers.

"There was no formal proposal that was discussed in the board." On Saturday, the finance minister said that the move for consolidation must originate from the public sector banks themselves, driven by the boards and supported by the officers and employees.

"What I understood from his speech was he wanted to say that there should be a consensus on this issue of consolidation, where the board, employee, management should be involved," Varghese said.

He was optimistic about the good effects of consolidation in the banking sector. It makes sense for banks to come together, consolidate, and re-deploy the resources to create new business, thereby cutting the cost, he added.

"Customers can get loans at lower rate and higher rate on deposits, for the staff also it is good as there is no threat of retrenchment, it will throw up more promotion opportunities because of opening up of more branches, and for the bank, there will be financial muscle to have larger international operation," Varghese said.

"Globally, we don't have even one Indian bank among the top 50 banks", he said  It was reported earlier that the Bank of India may merge with Union Bank of India.

However, the talks stalled following opposition from bank unions and the Left party. The bank has filed an application with the government to dilute 45 million shares and is awaiting the clearance.

"We hope that the formalities would be complete in 3 months," Varhghese said.

After getting the government's approval, the bank would seek shareholders' and Sebi (Securities Exchange Board of India) nod, he said.

However, the timing of the issue will depend on the market condition, he added. The bank is planning to dilute 45 million shares in the current financial year, which will ring down government shareholding to 55.45 per cent from 60.85 per cent.

Going by current valuation, the total size of the issue would be around Rs 500 crore, he said said. Post issue, the capital adequacy ratio may rise to around 13 per cent, he said.

In the quarter ended June, the bank's capital adequacy ratio was 12 per cent. The bank plans to add 100 more branches in the country in one year, he said. The Mumbai-based bank, however, does not have any overseas expansion plan.

"Domestically we are very strong, we have 2,053 branches, which are well distributed in the country," he said. There is a huge demand in the domestic market, while the overseas market is very competitive.

"Yes, you need to have an international footprint because a number of your customers are now going international. Secondly, it is a matter of pride and prestige to have an international presence."

But there is a lot of business opportunities in India and lot of international banks are planning to come to India, he added. The bank has received the RBI's approval to set up representative offices in Doha and Dubai. The bank is awaiting the local authorities' approval of the respective countries to start operation.

Union Bank of India shares closed Rs 133.65 on the National Stock Exchange (NSE), down 1.00 per cent over Wednesday.