NIM maintenance & restructuring likely in Q3: Union Bank

In an interview to CNBC-TV18, SS Mundra, executive director, Union Bank explains how they have managed to keep their net interest margins at around 3%. He is optimistic about maintaining the NIM in the second half of the fiscal too.

"We have been continuously managing our deposit portfolio in a fashion that we have been shedding the high cost deposit. We have always maintained that we will calibrate our deposit growth to the requirement of our credit growth," he adds.

Also read: Sukhani upbeat on Union Bank

Below is the edited transcript of Mundra's interview to CNBC-TV18.

Q: You have managed to maintain your net interest margin (NIM) at around three percent and there was a 16 bps sequential decrease in your cost of funds. What exactly is your cost of funds looking like on a sequential basis this quarter as of now? What would your NIM guidance be for the second half of the fiscal?

A: NIM guidance right from the beginning of this year 3.20. However, having taken a judgement on this scenario which is unfolding from the year beginning, we have given a guidance that we would be able to maintain the NIM at around 3. That has been the situation in Q1 i.e. June, Q2 i.e. September and our guidance post September result also continues to remain the same. We will be able to maintain NIM at around 3 or slightly more than 3.

We have been continuously managing our deposit portfolio in a fashion that we have been shedding the high cost deposit. We have always maintained that we will calibrate our deposit growth to the requirement of our credit growth. So, keeping that dynamic situation, we expect that our NIM position would remain consistent in Q3 as well.

Q: What are you expecting by way of credit growth and will you drop rates for some people?

A: As far as the large corporates are concerned, those who are performing well were always to get a rate of interest which is sustainable. Those who are not performing well, not because of the rate of interest, but because of the various other organisational issues, there would have been the interest rate as a matter of discussion.

So taking all these factors into account, we expect that our credit growth for the year would be more than 17 percent. If you look at the latest data available, the credit growth in the industry is more than 16 percent year-on-year (YoY) basis and for us it had been more than 19 percent. Giving due regard to the best effect of the previous year and the credit growth pattern in various quarters of the previous years, I expect the credit growth to be more than 17 percent for Union Bank.

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Q: Your restructured book actually came down at around Rs 800-900 crore in Q2 FY13. What is your trajectory for the second half of the fiscal, in terms of the restructured pipeline? Is there more pain with regards to possible restructuring from State Electricity Boards (SEBs) etc? What would the pipeline and average restructuring amount look in the next two quarters?

A:  As far as the non performing asset (NPAs) position is concerned in Q2, Union Bank was probably the only bank in public sector space, wherein our NPA had come down in absolute terms as well as in percentage terms. It has been a result of whatever was happening in last two- four quarters. We were constantly working on it and you must have seen that in Q2 of previous year and Q1 of this year, there have been slippages, but that was more on account of taking recognition, dealing with a problem head on and putting the corrective measure.

All those efforts started reflecting in the result. However, it would be a challenge to maintain this and I would not say that any complacency would be helpful. So we are quite alert to that.

As far as restructuring is concerned, restructuring in today’s economic environment is a fact of life and there had been restructuring. However, the first thing which we have to clearly recognise is that restructuring is one thing and slippage and NPA is another. If I look at my own restructured book, the total restructured book till today has been to the tune of Rs 14,000 crore roughly and outstanding within that is around Rs 10,000 crore plus. That means that Rs 4,000 crore out of the historical accumulated restructuring has been paid up. Similarly, the slippage from the restructured book has always been to the tune of 12-13 percent which is always consistent with our guidance. We have maintained that our guidance will not exceed 15 percent of the restructured book.

We did some restructuring in Q2 and we expect that Q3 also there would be a pipeline of restructuring. Some of this restructuring may be due to financial reasons, but some of it may come because of technical reasons like the CoD issues. However, in the SEB space we have already dealt with those cases in the quarters and I don’t see any more coming within that space barring the new framework, which is under discussion and that will be an entirely different thing.

Q: The SEB tripartite discussions have begun. Something which the government had mooted? Are we going to see recasts?

A: The guidelines have come, but we are yet to see any definite move on that. So far, there has not been any definite move from any of the SEBs.

Q: A lot of the analysts were actually quite happy with the robust recoveries and upgrades which you all have been showing especially in the previous quarter. Any guidance with regards to a possible run rate in the next couple of quarters in recoveries and upgrades?

A: If we are expecting that we will continue to reduce our NPAs in absolute as well as percentage terms, that automatically means that our recovery and upgradation should be able to match the future slippages which are happening and maybe some elements of write-off will come, which will ultimately result into reducing the NPA. So we would be able to maintain the run rate which we have been maintaining in last quarter.