Hope to maintain NIMs above 3% ahead: Union Bank of India

During the period, total income increased to Rs 6,561.10 crore from Rs 5,399.68 crore for the quarter ended June 30, 2011. Net interest margin was 3.01% for the period against 3.10% in the comparable period.

Debabrata Sarkar, chairman and managing director, Union Bank is hopeful about maintaining NIMs above 3% going ahead.

"In the last quarter, the base rate was reduced. Cost of deposit could not give comfort to us; it was still it was higher. So, margins reduced, but considering present situation we hope that we will be able to maintain it over 3%," he said in an interview to CNBC-TV18.

Below is the edited transcript of Sarkar’s interview with CNBC-TV18.

Q: You recorded fresh slippages of Rs 1,600 crore is this pain that will continue even in the current and next quarter. We have just got some numbers for the July, PMI numbers as well they are not looking very good. As the economic slowdown continues are we going to see more slippages in the current quarter as well?

A: As far as the asset quality is concerned, some lumpy accounts which cover around Rs 900 crore plus have slipped. We expected to get the money back or they will adjust their dues, but that could not happen. Besides that, whatever is the slippage is in the normal course. We have not noticed any abnormal slippage.

Considering the present economic situation, it is very difficult to say, but we are completely on the job, we are working on how we can arrest slippages and how effective steps can be taken for the same, so we are tying our level best. I feel that we will completely endeavor to arrest and cover slippage. Whatever has been done till now, with that I expect we will be able to recover or update in the current quarter also.

Q: Your provision coverage ratio is also at 62%. A lot of banks are gunning for 80% on provision coverage ratio. Even over there a little work has to be done and that will affect profitability do you have a goal in terms of increasing the provision coverage ratio at all?

A: When profit is increased and a lot of money is goes for provisions then the provision coverage comes down. We have the endeavor and I hope that profitability will increase. We will be able to make more coverage in provisions in future.

Q: The average run rate that we can expect in terms of slippages as well as possibly restructured assets in the next couple of quarters, hence give us a sense in terms of what exactly would your provisions on an average run rate look like?

A; Restructured assets in the last quarter were about Rs 1600 crore there was one electricity board account which is around Rs 1200 crore. So, it is not that a big chunk as such and slippage is also not alarming. Restructuring was required to be done because there were compulsions.

We have done for two-three accounts, textile, power etc. Some SEBs might come to us for restructuring, but in this quarter only one SEB was there. Apart from that there is no big restructure.

So, in this quarter small restructure might come because of the economic slowdown and low sentiment. That is the only concern.

Q: What about NIMs this quarter because NIMs were pretty much lower this time around 25 basis points sequentially but that was guided by the management in the previous quarter. How do you expect the trajectory to continue for your net interest margins?

A: We will be able to maintain net interest margins over 3%. In the last quarter, the base rate was reduced. Cost of deposit could not give comfort to us; it was still it was higher. So, margins reduced, but considering present situation we hope that we will be able to maintain it over 3%.

Q: The SBI chairman told us about how there isn’t much demand for term loans at all and therefore everybody will now be gunning for retail loans and over there you could see some under cutting and competition do you think that could drive lending rates lower and therefore margins lower?

A: Certainly, competition is quite stiff, but we have also reduced rate of interest especially after reducing base rate. Other banks are also reducing their rates, so competition will be there. Our focus has been on retail, agriculture and SME. If competition is there we have to fight it because our rate is quite competitive in the market.