Union Bank may fail to achieve projected credit growth of 25%

State-run Union Bank of India has seen a robust growth in retail credit so far in the current financial year, but since overall loan growth remains muted, meeting the bank’s earlier projection of 25 per cent credit growth for 2009-10 may be a challenge.

As a result, the bank has scaled down its credit growth projections to 20-22 per cent, said Chairman and Managing Director MV Nair on the sidelines of a press meet today.

During 2008-09, the bank recorded a credit growth of 29.5 per cent to Rs 98,265 crore, while deposit growth was 33.5 per cent to Rs 103,859 crore.

While the industry’s deposit growth in the current financial year is the same as in the previous year, which is around 21-22 per cent on year, credit growth has been lower at 15 per cent as compared to 25 per cent during the corresponding period of the previous year.

“Credit growth of 25 per cent in the current financial year looks challenging,” Nair said. Nair, however, expects home and auto loans to pick up once the festival season kicks in.

“As of now, Union Bank of India’s retail credit growth is 26.5 per cent as compared to 16 per cent last year. Now, as the festival season kicks off, we expect a pick-up in demand from home loan buyers. Auto loans are also picking up,” Nair said.

Nair also said the bank’s transaction banking unit was expected to earn a fee income of Rs 150 crore in the current financial year, up from Rs 37 crore in the previous year.

“We had set up the transaction banking division in March 2008, which looks after segments such as government business, cash management services, currency chest, mobile and ATM payments,” he said.

The core fee income of the bank was Rs 818 crore in 2009-10, reporting a growth of 29.22 per cent.

On whether there was any headroom in the state-owned bank’s hold-to-maturity (HTM) gilt portfolio, Nair said that there was some, but did not quantify it.

The current ceiling on banks’ HTM portfolio is 25 per cent of net demand and time liabilities.

However, most banks are close to the 25 per cent ceiling, and further bond buys will have to be categorised as “available for sale”, which will be marked-to-market (MTM). Banks fear huge MTM losses due to the huge government borrowing programme.