Asset quality concerns are not over yet: D Sarkar

Interview with CMD, Union Bank of India

D Sarkar, chairman and managing director of Union Bank of India who will retire end of this month tells Manojit Saha that since the bank has adopted system driven identification of non-performing asset, negative surprises on the asset quality front is not a likely scenario.  

 

There is a 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. 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. 

 

Our approach has been consistent and in sync with regulatory guidelines when it comes to classification of assets. Moreover, Union Bank has migrated to system-based recognition of NPAs. The increase in NPAs 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. 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 RBI is also a key factor in determining the debt servicing by borrowers.

 

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?

 

We always have recovery higher than slippages. Recovery of bad loans continues to be a focus area. We have a separate department which closely monitors the recovery across the business units. Total recovery for H1 FY14 was Rs. 1378 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 3500 crore. This includes Rs. 1500 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?

 

Banks will get capital in the ratio of 10:1 for incremental advances made select categories of retail loans advances during October 2013 to January 2014. 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. We need a huge sum of core equity capital in run up to complete transition to Basel III framework and therefore, government need 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 percent and 16 percent respectively in FY14, much in line with industry. As for resource mobilization, our efforts are on mobilizing stable and low cost deposits, particularly CASA. In advances, our focus sectors include MSME, Retail and Agricultural sectors. 

There are challenges in terms of margin protection. However, we are hopeful of maintaining NIM of about 2.60 percent for FY14.

 

What are the unfinished tasks? 

 

There is a lot being done and lot to be done which a Chairman will like presiding from inception to the fruition, even within a short term of over six quarters like mine. 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. 

 

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.