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Interview with MD & CEO, Union Bank of India: ‘Stress in the retail sector high, but slippages not much’

While the overall demand from the retail sector continues to remain good, there are some signs of stress visible in the non-salaried segment, said Union Bank of India MD and CEO A. MANIMEKHALAI. In an interview to HITESH VYAS and GEORGE MATHEW, Manimekhalai, who was Executive Director with Canara Bank before coming to Union Bank, said the lending and deposit rates will stabilize at these (current) levels. Excerpts:

How was the third quarter for the bank?

In the first quarter of this fiscal, I had just walked into the bank. So, I couldn’t do much. In the Q2 and Q3 we have done a lot of hard work and the whole team is now energized. Everybody is moving to the field. We have seen a lot of inclusive growth happening. In terms of recovery, we have recovered close to 5,60,000 (number of bad loans) in the last three quarters. This is all coming up because everybody is involved in the growth of the bank.

Is this growth a reflection of change in the economy?

The change in the economy is the one area to look at, but the other way to look at it is how the people are being energized. The last two years were affected because of the pandemic. Mobility was not there. Now we are seeing a lot of things happening and the bank is also progressing. We have brought structural changes in the bank. If I talk of the recovery alone, we had NPAs in all of our 8,700 branches. We have pulled out NPAs that are more than Rs 20 lakh from all the branches and pooled them into ARB (asset recovery branch) and SAM (stressed asset management) branches. So now, we have a pool of 30 branches that look into NPAs and close to 90 per cent of my NPAs are sitting in these branches and we are able to concentrate on them. Less than Rs 20 lakh NPAs are still with branches where we are running schemes such as one-time settlement (OTS) and are able to recover.

Where is the stress coming from?

Stress is high in the retail sector. We have observed stress in the non-salaried segment such as the business community. Salaried segment is behaving okay. However, these loans are not slipping (into NPA category). If you look at my entire stressed assets, almost 15 per cent is coming from the retail sector but slippages are only to the extent of Rs 351 crore in Q3 FY23. Besides retail, we are seeing a little stress in the MSME sector.

Have the repo rate hikes impacted retail demand?

We have seen good growth in the retail sector. The moment the RBI increased the rate of interest, we transferred it to our customers. Close to 50 per cent of my retail portfolio is in the housing sector. We have seen around 14.5 per cent growth in education loans and around 40 per cent in the gold loan portfolio. Even our personal loan segment is doing very well. I don’t think there will be any slip in demand for retail loans.

Your advances grew by 20% in Q3. Can you sustain this?

In the first quarter, we had a good growth in advances of 13 per cent. In the second quarter, we did 22 per cent, and the growth in the third quarter was 20.9 per cent. This growth was because of the base effect. In the March 2022 quarter, a huge credit growth was seen and so we may not be able to show a 20 per cent kind of growth in March 2023, but we will be able to be close to our (credit growth) guidance of 10-12 per cent, or a little above it.

How is your corporate loan book performing?

We are seeing good growth in sectors such as hybrid annuity model (HAM), steel, pharma, petroleum and cement. The demand is for term loans and working capital. A lot of green-field projects are coming to us. We have sanctions of about Rs 39,000 crore and they are at various stages of disbursements. The pipeline is Rs 40,000-45,000 crore.

Have you passed on the entire 225 bps Repo rate hikes?

In the loans linked to the external benchmark-based lending rate (EBLR), we have transmitted the entire 225 bps hike in Repo rate. Close to 115 bps points have been passed on to loans linked to marginal cost of fund-based lending rate (MCLR). Of our total loans, 47 per cent are linked to MCLR and 40 per cent to EBLR.

Do you see further rise in interest rates?

No. I don’t think that the Reserve Bank of India (RBI) will raise the interest rates any further. Inflation is under control and the growth trajectory has to be shown. The lending and deposit rates will stabilize at these levels.

What are your fund-raising plans?

We got an approval for Rs 8,100 crore of capital raise. We have already raised Rs 1,983 crore of tier I capital and Rs 2,200 crore of tier II capital. We are only going to raise Rs 3,800 crore of qualified institutional placement (QIP) in the current quarter (Q4 FY23) to reduce the government’s stake. Today, the government’s holding is 83.69 per cent and QIP will help in bringing it down by 4 per cent to 79 per cent.

Why are bank shares rallying on bourses?

All public sector banks are doing very well. They have cleaned up their books. Growth is seen in all the parameters. They are able to raise capital from the market and are not going to the government for fund infusion. They are well capitalized. PSBs’ story was not heard before and now is the time of these banks.

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