Expect credit growth of 18% ahead: Union Bank

In an interview to CNBC-TV18, Debabrata Sarkar, chairman and managing director of Union Bank says he expects a credit growth of 18% ahead.

Also read: Lowering deposit mobilisation due to slowdown, says SBI

Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Ekta Batra.

Q: There is a trend that seems to be emerging across all banks including yours. Many of you are now targeting the retail sector. We first saw State Bank flagging it off by reducing interest rates only for auto loan, home loan and the retail loan sector, now all of you have followed suit. Are margins under threat in this sector? Do you think this trend will exacerbate?

A: Our bank has also reduced the auto loan. Festival season is in the offing. Therefore, we have reduced the rate. We have compromised with the mark up over our base rate. We will try to compensate through the volume increase. That is our objective.

Q: What might be your net interest margins for this and the next quarter?

A: We have indicated that earlier that we are trying and we are endeavouring to maintain our net interest margin (NIM). We are hopeful. We are not going in a big way for high cost deposits. More emphasis is being given both in the savings and current. So, we are hopeful that the cost of deposits can be kept under control. So, margin can be protected.

Q: Post these lending rate cuts that you have taken in the auto segment as well as the home loan segment, how much of incremental demand do you actually see coming-in in terms of increased credit off take? What would your FY13 guidance be, post these cuts?

A: Demand is coming. First quarter is always little bit sluggish. August onwards, some demand is coming. All the consumers are maybe waiting to take the benefit of the interest rate action. So, I am hopeful that my volume will compensate my interest rate actions. That is our target.

Q: How much of incremental demand would you see?

A: We are expecting to have a credit growth of around 18% altogether. But it is still not very encouraging situation in respect of the credit.  I feel that agriculture credit also will pick up now onwards.

Q: The attention to retail appears to be coming from the bankers also because there is not much demand for loans from the corporate sector. What is your sense you will end the year with in terms of loan growth?

A: In this present situation, the corporate demand in respect of the credit is quite low. In some cases, maybe the selected corporates are coming for expansion programme or capex programme. But overall demand is quite low. Sentiment is quite low. We are maintaining 17%-18% growth rate for the credit. But we can take a proper view after a month’s time.

New projects are really quite low. Some of the input linkage issues are there in power sectors, maybe in respect of road also little bit. Situation is not very encouraging. Some of the projects are not really going ahead in respect of their completion. So, overall, sentiment still is not very good at this moment.

I think the sentiment is poor. The demand is also followed by that only. Maybe after September, more or less, I think all the banks also trying various sectors to give consumer loans and other things. In that case, I feel that sentiment will boost up little bit now onwards.

Q: There are reports doing the rounds that there are some private hospitals currently in need of restructuring or possibly looking to pare off stake because of high debt levels at this point in time. Can you give us a sense in terms of what exactly the restructuring pipeline looks like and a couple of key accounts or sectors?

A: In respect of the restructuring, I have already indicated that mostly the SEB sectors are coming, two three steel sectors also coming. At this moment, I think the pipeline may be around Rs 500-1000 crore. We are taking a stock within two-three days. But it is not a very big pipeline.

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Q: Are you saying for the September 30 quarter?

A: Taking all, it may go upto Rs 3,000- Rs 4,000 upto March 2013. But this situation is changing. Maybe some of the SEBs will be coming also in the pipeline. At this moment, there is no SEB in the pipeline, atleast till date. Some of the state electricity board may come in the next quarter or last quarter. But, otherwise, it is not big in the pipeline at this moment.

Q: Not SEBs, but is it Rs 3,000 crore or Rs 4,000 crore? You said Rs 3,000-4,000 crore for restructuring, where is it likely to be closer? In your analyst meet, you had guided for Rs 3,000-3,200 crore. So, is it a little more than what you estimated at the time of your analyst meet?

A: At this moment, we did not get any proposal as such. It is just that we have estimated that this maybe the amount.

Q: What about slippages? How would it be this quarter?

A: Deposits, in Q1, were not very encouraging at all. But I still think it has started moving little bit. We have observed some CASA growth in average growth.

Q: I was asking about slippages, you reported Rs 1,630 crore by way of slippages in Q1. How Q2 might shape up?

A: Few accounts were expected to repay. But they could not do it. Some of the accounts have already expected that they have arranged the fund and maybe some improvements will be there. That was the reason why our slippage was higher. Otherwise, normal accounts in the SME sector, agricultural sector, housing sectors, the normal tendency of the slippage was there. In this quarter, we will be recovering something, some accounts will be upgraded. I am hopeful that we will be able to show some prospects in these all accounts, which have been classified in the last quarter.

Q: Is there any sort of repercussions with regards to the Coalgate scam? If there is an exposure for a bank towards these companies, what sort of exposure would it be? How worried would you be about it possibly turning into a NPL etc and for you bank in particular as well?

A: I read in the newspaper today. We are examining the impact. We are examining some of the accounts. It will take some time to examine.

Q: There are a lot of power plants that are still under completion, still at the capex stage. If they don’t get coal linkages, if this coal issue is not sorted out, do you fear that this whole new power plants that are under construction are going to get into NPLs? Will we see that power generation NPLs increase in FY13-FY14?

A: If our domestic linkages are not working certainly, they have to think for insourcing other inputs. That is quite natural. Some of the companies may be there in our books. We have to examine case-to-case basis. I have already instructed my department to have a look into it.