'Expect a big push on retail, SME loans'

Q&A: Bhaskar Sen, UBI Chairman and MD, United Bank of India

After raising Rs 325 crore through an initial public offer (IPO), United Bank of India (UBI) is pushing for a strong national presence. However, the Kolkata-based bank, which got listed on Thursday, is facing challenges like expanding the retail portfolio and improving the net interest margin. In his first interview since taking over as UBI Chairman and Managing Director, Bhaskar Sen tells Namrata Acharya about the strategic changes the bank is working on. Excerpts:

What are the changes we should expect given that UBI has been an East India-focused bank?
After the IPO, we will have to streamline procedures. The way of life will be a little different now. We will have to release our financial results every quarter. At present, 82 per cent of our branches are in East and North. We will see what best we can do. Six months ago, UBI became the first bank in the eastern region to have all its branches under CBS (core banking solution). We have the platform. The question is how best we can leverage that. We are looking to streamline the training process to upgrade the skills of our staff to make the most of technology. My colleagues at the bank are very knowledgeable. My effort will be to unlock value.

What distance can you travel with this IPO?
We expect an additional Rs 550 crore capital from the government before the end of this financial year. With that, till 2012, we will not face any constraint in expanding our loan book by 20-25 per cent annually. Over capital adequacy ratio will be above 12 per cent. We also have headroom to raise capital through Tier-II bonds.

The credit offtake is on the rise. What kind of growth do you think banks will see in advances for 2009-10?
The demand for credit has improved on the back of economic recovery. We expect 18 per cent annual growth in advances (higher than the Reserve Bank of India’s estimate of 16 per cent). The outstanding advances at the end of September 2009 stood at Rs 41,219 crore.

How are you going to improve visibility, especially in the western region?
The focus is on increasing business in Maharashtra and Goa. We have over 50 branches in the region. The region accounts for 25 per cent of our advances. The per capita income in this region is high.

What are you doing to improve your net interest margin (NIM)?
At present, our NIM is just 2 per cent. We will have to take initiatives on the retail side. We are looking at a lot of options. We will also focus on the priority sector, where we get a reasonably good yield and the risk is spread over different accounts. On the assets size, we are going to be aggressive. We are going to broadbase our portfolio as retail loans account for only 13 per cent of our book. You will also see a lot of activity on small and medium enterprises.

Do you see interest rates rising in the near future?
We have revised our deposit rates with effect from March 15. Immediately, I do not see any change in lending rates, as credit demand is low. However, we can review the situation depending on the market conditions and revise our lending rates. We are gradually reducing dependence on CDs (corporate deposits) and focusing on deposits to meet the demand for credit.

Will the base rate help improve margins? Are you prepared to implement it?
Since we are fully on CBS, the base rate calculation is not a major problem. We have done a lot of ground work on it. We still have time. Once we have it in place, the entire banking system will get streamlined. There will be healthy competition. It will not be that one bank will undercut the other. Interest margins will improve as there will be certain threshold parameters.

How has the credit growth been so far in the fourth quarter? Is 20 per cent growth achievable?
We thought there would be more activity on the credit side in the last quarter, but we are yet to see that. So, possibly there will be gaps, and having 20 per cent or more credit growth will be a real challenge. A realistic target will be 18-19 per cent.

What are your views on consolidation in the banking industry?
Four banks merged to form United Bank of India. So, consolidation took place long back. It is not something new to us. It is premature to talk about it.

Do you see some pressure from rising non-performing assets (NPAs), especially due to the restructuring done in the past?
The restructuring was done keeping in view the viability of the entities. So, once we restructure an entity, it should not be a concern. The situation is much better now. I do not see any pressure on NPAs.

Is the banking industry mature enough to shift to a performance-linked salary structure?
I don't think this is the right time. At this point, we do not have any plan for a variable pay structure.