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Cover Story

“There is surely a huge opportunity in retail loan segment.”
In an exclusive conversation with B&E’s Mona Mehta, M. V. Nair, Chairman and Managing Director, Union Bank of India (UBI), talks about the expected growth of the bank in the coming year and the initiatives UBI is planning to take to make retail lending more consumers oriented.
Issue Date - 10/11/2011
B&E: Is Indian banking industry ready enough to handle the situation if the economic scenario depletes further and the world goes for a second recession?
M. V. Nair (MVN): In the global context, India is the second fastest growing economy (out of the large-sized countries) and has a well-balanced economic structure. It is not highly dependent either on foreign financing or foreign demand, as some other countries. Its banking sector is well capitalised and enjoys a strong deposit franchise. Moreover, Reserve Bank of India has always shown a high degree of flexibility and responsiveness during the past phases of global crisis. So even if the economic scenario depletes further, our banking industry and its regulators would handle the situation well.

B&E: UBI has recently increased its deposit rates by 0.25-1% across various maturities. The bank has also upped the benchmark prime lending rate (BPLR) by 0.5% to 12.25% from 11.75%. How will this impact UBI’s margins going forward?
MVN: During second half of the previous year loan growth was better than the RBI’s indicative projection and was outpacing the deposit growth of banks. This also led to structural liquidity deficit and warranted higher incentive for savers. Thereafter banks augmented the pace of deposit rates cycle which yielded favourable response from the public. While the lending rate also increased, they lagged behind the deposit rates in quantum terms. Secondly, we have also experienced that deposits contracted at lower rate in earlier period have higher propensity for repricing during increasing interest rate cycle. Thus, margins will definitely be impacted. Factoring this, we have indicated net interest margin (NIM) of 3.20% for the current fiscal compared to 3.33% in the previous year.

B&E: UBI’s gross non-performing assets (NPAs) declined from 2.79% in September 2010 to 2.68% in December 2010 and further to 2.37% as on March 31, 2011. How do you expect the bank to perform on this front this fiscal?
MVN: Our NPAs had peaked in September 2010 when gross NPAs to gross advances ratio was 2.79% and slippages for the quarter were Rs.1,130 crore. There was a steady decline in slippages to Rs.765 crore in Q3 and then to Rs.406 crore in the last quarter of the previous fiscal. Consequently, our gross NPAs stood at 2.37% as on end-March 2011. Hereafter, asset quality has positive outlook and we see gross NPAs at around 2.0% by March 2012.

B&E: Your retail lending portfolio grew over 28% (y-o-y) last year. In fact, it’s around 11% of your total loan book at present. Are there any plans on the anvil to expand it further this fiscal?

MVN: UBI is focused on increasing its retail loan portfolio. There is a huge opportunity in retail loan segment due to favourable demographic profile, increasing migration to urban centers and a general rise in consumer aspiration. The retail penetration in India, measured by retail loans to GDP ratio, is about 9.5%, quite lower when compared to mature markets where this ratio ranges from 15 to 20. Considering this potential, UBI is gradually building a robust retail lending model. In fact, today we have 46 specialised branches called, ‘Union Loan Points’ for retail loans. These branches have exclusive focus on retail loans and also leverage the lead management technology for converting the leads from other branches into real business. We are also offering specific loan products in order to meet the customised needs of various segments. Today, technology can be leveraged in many ways and one interesting thing can be tracking the number of products availed by an average customer and then cross-selling to those whose availment is below the average. We are gradually building this capability that would provide us advantage in deepening the retail lending customer base.

B&E: What about UBI’s rural presence? How do you plan to augment it further?
MVN: Rural and agricultural banking are significant areas of priority for the bank. Almost 55% of our branches are located in centers which cater to the needs of people whose livelihood is dependent upon agriculture and allied activities. Going forward, bank will open significant number of branches in rural centres in order to facilitate meaningful financial inclusion. This will include at least 25% of new branches in unbanked rural centres (Tier 5 & Tier 6). Any one technology can not suffice the needs of rural areas due to the locational issues and different comfort of the people for a particular technology. Therefore, UBI is using a host of technology platforms to reach out to the masses. This includes biometric cards, ATMs and mobile banking. In fact, we have recently tied up with Nokia for our co-branded product ‘Union Money’. Under this a person can transfer the money, pay his utility bills just by visiting any Nokia outlet. Then there are business correspondents who reach out to the people using biometric card technology.

B&E: Your expansion plans for the current fiscal...
MVN: UBI today has more than 3,000 branches and nearly 2,700 ATMs across the country. There is still vast scope for deepening our presence in pockets of emerging growth centres. In FY 2012, a total of 400 branches are likely to be opened. Of the new branches, significant share will be for branches in hitherto under-banked centres. Similarly, we are planning to increase our ATMs to 5,000 by end of the current fiscal. As far as international expansion plans are concerned, UBI would expand in select geographies. Presently, the bank has approvals from the Reserve Bank of India (RBI) for converting the representative office in London (United Kingdom) into a subsidiary and representative office at Sydney into a branch. The bank also has approvals for opening a branch each in Antwerp (Belgium) and Dubai International Financial Centre and representative offices at Johannesburg (South Africa) and Toronto (Canada). The process of obtaining approvals from the respective foreign country regulators are at various stages.

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