‘Union Bank aims to be third-largest PSB by 2025’
Manimkhalay, Managing Director and CEO, said in an interaction with business line.
While a few retail, MSME (micro, small, and medium) accounts are showing signs of initial stress due to the sharp increase in lending rates, the head of the consolidated basic income emphasized that they are backed by collateral and credit guarantees, respectively.
Manimekhalai expects a higher recovery from slippages this year as well, with total non-performing assets (GNPAs) falling to less than 6 percent of total advances by the end of March 2024 from 7.53 at the end of March 2023.
How have lending rates moved in response to the 250 basis point cumulative repo rate hike since May 2022?
We have passed the entire height to our retail, micro, small and medium corporate clients. In the case of corporate clients, the transition to the marginal cost of the funds-based lending rate was 140 basis points.
Fifty percent of our loan book is MCLR driven; Twenty-four percent is measured on the EBLR-linked external lending rate, and the remainder is tied to the base rate and the standard prime lending rate.
So, 50 percent of the MCLR book will be repriced/repriced annually. About 40-45 percent of this book has already been re-priced. In the current year, about Rs. 2.50 lakh crore will be re-priced from this loan book.
Therefore, we are not seeing any decrease in the net interest margin (NIM).
If RBI continues to pause, the kind of increases in EBLR that we’ve seen in the last year or so may not happen. EBLR may stabilize. But our MCLR book will be re-priced.
How big is the corporate loan sanctions pipeline?
As of the end of March 2023, our total advances are Rs.8,09,905 crore, with the ratio of RAM (Retail, Agriculture, MSME) to Corporate advances being 55:45. Our corporate loan book is growing. We have a healthy sanction pipeline of around Rs 35,000 crore. So, our company book, as well as the yield on that looks pretty good to me. Therefore, we should be able to maintain NIM at least 3 percent.
If we can keep the cost of deposits down, we really don’t have to increase the MCLR.
Your CASA (current account, savings account)It decreased to 35.62 percent of total deposits at the end of March 2023 compared to 36.54 percent at the end of March 2023. Will you be able to grow these deposits when fixed deposit rates rise?
Deposits of checking and savings accounts have moved to CFDs because the latter have re-priced… We already saw CFD prices drop in March by 50-70 basis points (bps). Therefore, we will see a moderation in deposit rates.
CASA is not very sensitive to rate. It is only the service and the relationship that we maintain with clients that help build CASA.
Despite the decrease in CASA ratio last year, we were able to add Rs. 16,862 crore in CASA deposits in FY23.
We are taking steps to increase CASA. We are taking a focused approach to the development of these deposits. We have set up a separate deposit mobilization vertical. Within that we have separate structures for salary accounts, HNI clients and NRI customers.
We have a franchise of 8,580 branches across urban, semi-urban and rural areas. In addition, we have coverage through approximately 17,800 trade correspondents who provide banking services in rural areas.
We have around 14 crores of customers out of which around 7 crores are active customers. We will click on those active clients.
In addition, the digitization journey is taking shape well. Our ‘Vyom’ mobile app has 350 features and STP (Straight Through Processing) trips… So, there’s a lot of activity around CASA, increasing the number of accounts, building relationships.
Why did you set a lower credit growth target (10-12 percent) in FY24 versus the 13.05 percent achieved in FY23?
We have adjusted our credit growth target in line with market estimates. Analysts are looking for credit growth of 13-15 percent. We’re open to growth beyond 12 percent, which I’m sure we will. Last year we did that too. We expect decent credit growth from the ARs segment. Last year, this sector grew by 14.94 percent. We will see either similar or more growth this year.
In the corporate credit segment, we are looking to grow in sectors such as the Hybrid Installment Model or HAM (Road), Renewable Energy, Steel, Textiles, Chemicals, and Pharmaceuticals. There are 14-15 PLI (production-linked incentive) schemes from the government, and we’re going to be part of that growth story.
How is the growth in your gold loan portfolio?
We did very well in fiscal ’23. We had 48 percent growth in gold loans. The portfolio has grown to Rs 50,165 crore at the end of March 2023 from Rs 33,828 crore at the end of March 2022. We have added a large number of clients. Through them we will collect CASA and sell other products. We have unlocked 1,331 gold loan points. These are part of our subsidiaries, but the Key Result Area or KRA are Gold Loans only.
What is the loan recovery target for FY24?
We made a total recovery of Rs.20,142 crore in FY23. Slippages were at Rs.12,518 crore… In FY24, we expect recovery and slippage of Rs.16,000 crore and Rs.12,000 crore, respectively. The GNPA target is less than 6 percent.
Last year, there was a good focus on accounts written off (WO). We recovered Rs. 5,549 crore from these accounts (against Rs. 2,750 crore in FY22). This effort will continue into fiscal ’24 as well. Our portfolio of WO accounts is close to around Rs 70,000 crore.
Posted May 10, 2023