New Union Bank chief to focus on NPAs, retail biz

With economic slowdown pushing up the tally of bad loans, Union Bank of India will focus on improving the management of non-performing assets (NPAs) and bolster its financial profile, said the new chairman and managing director, D Sarkar.

The emphasis will be on monitoring NPAs, including recoveries. The bank will have to study the sharp rise in NPAs due to system-based recognition of bad loans, he said on Monday.

Moody’s had downgraded the ratings of Union Bank in March due to weak asset quality and inadequate loss absorption capacity. The bank’s financial strength was cut from “D+” to “D”. The global local currency deposit is down to Baa3/Prime-3 from Baa2/Prime-2.

M V Nair, the former CMD, had told Business Standard in March that gross NPAs declined in December 2011 to 3.33 per cent after peak of 3.49 per cent in September 2011. It is expected to fall below 3 per cent for the quarter ended March 2012. The asset quality is expected to deteriorate further against the backdrop of a slowing economy and high interest rates, Moody’s had said.

Referring to the room to increase retail business, Sarkar said the bank has good network of branches and sound technology platform, which can be used to increase retail business, which is low now.

The share of outstanding retail loans at Rs 15,005 crore was about 9.61 per cent in loan book at the end of December 2011.

The share of low-cost deposits — savings and current account — at around 32 per cent of deposits is comparable with peers. The emphasis is to keep the cost of funds low, he added.

The coverage ratio for non-performing assets increased in December 2011 to 63.14 per cent (70.2 per cent in year ago) from 60.52 per cent in September 2011. It is expected to rise hereafter to touch 66 per cent by March end.