Q1 slippages to be lower than previous quarter: Union Bank

While the Reserve Bank governor did initiate a clean-up of the banking system, it is the duty of bankers to recover (their money) now, says Rakesh Sethi, Executive Director of Union Bank of India. Asset quality review (AQR) measure has been a very good move by the RBI. The economy is turning positive now. As the economy improves further, the recovery cycle in stressed assets too will pick up, Sethi says.Going forward, Sethi expects first quarter slippages to be lower than the fourth quarter (FY16) slippages, which were Rs 6,000 crore plus. The new norms for NPLs will take time as the Overseeing Committee is yet to be established. Below is the verbatim transcript of Rakesh Sethi’s interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy.Latha: Raghuram Rajan exits at a time when the work of cleaning up bank balance sheets is half done. Is there a worry among bankers that this should be handled properly and this midway exit might actually throw a spanner in the works?A: This point of one factor which has come very sharply is by Asset Quality Review (AQR) banks have also come into focus to speed up the recovery efforts simultaneously. Even Mr Rajan has made one of the statement earlier. Organisations are bigger than the individual. But having said that lot of respect for Mr Rajan not only in the banking community but overall also. Establish the credibility of all these Indian markets more particularly the way the things have been handled including Forex reserves. Hats off to him for doing all the things in a better way. But only once it has been decided both Reserve Bank of India (RBI) as well as government will take positive steps to see to it that market does not get into some other mode and which is visible in the market also.Coming to the banks RBI's focus certainly helps us but at the same time recovery is my duty and saving and monitoring of the account is banker's responsibility. So, on that score we will certainly remain focussed. Whosoever comes in his place wishing that prospective all the best but at the same time banker will stay focussed doing our core job.Sonia: So, you are saying that the successor of Governor Rajan will be able to take forth a lot of his policies with ease, there should be not concern there at all?A: I would say that whatsoever move may come, let it be 5/25 scheme then post strategic debt restructuring (SDR) part and now S4A, all those are well thought of plan and it is a way of giving the borrowers also a bit of leverage. If they are willing to show their commitment to pay the debt and run the unit. The main focus where RBI has also come into play is that economic value of the asset should be preserved and to that extent if banks have to take a bit of haircut but at the same time economic activity remains in motion certainly there are good chances of recovery also.Latha: There was a timetable laid down by governor Rajan that by March 2017 we should be able to clean up most of the stress on the balance sheets. Therefore potential stressed companies also bankers have been asked to identify over the next four quarters. Is that timetable very clear, you don't expect to be disturbed?A: Two things, one is that most of the assets have already come into play by declaring them non-performing assets (NPAs) and economy is now on the uptrend on the positive side. As the economy improves the cycle will also start changing. It is not only the recovery the problem of the NPA the economic activity has to pick up and as the gross domestic product (GDP) growth is showing positive the cargo sales and all these commercial vehicle (CV) sales also picking up things are looking on the positive side. Economy starts moving those concerns will also ebb down. So, pressure on NPA side even by March 2017 it will be there certainly but not to the extent which we have already seen.Latha: I wanted to ask you another related question. The bank board bureau has been speaking about consolidation. We saw the State Bank of India (SBI) and its subsidiaries getting consolidated. Have you all got any hint at all about how consolidation will take place in the non-peak SBI set?A: I will like to give you another perspective to this. When we are talking about mergers it should not be only that we are looking at a scale. We have seen internationally also where the bankers have gone for scale, they have failed also. It is more of the synergies, one part and bringing good value to the stakeholders. The SBI scheme of things fits into that very effectively. Now if on the other banks which you are saying where if the level of NPA is very high and merging two weak banks to show that scale wise they are in a higher balance sheet. That is perhaps not the workable way of going for the merger. Best thing will be let it be left to the banks. Let them look at the best of synergies which are available between the two banks including the HR component which is very vital. Then technology wise also some of the good things which can be taken over by both the banks.Latha: Is that what you all have been asked to work on?A: I am not privy to that but then this will be the way forward if banks have to merger other than the only merging you have to look at other synergies also.Sonia: There is a lot of pain in your own asset book. The slippages that you have seen is the highest in the last three years. What is the situation currently and do you see more pain in the quarters to come?A: The last quarter we have declared a slippage of Rs 6,000 crore plus and it has taken most of the accounts already into consideration. NPA will not be that big a problem. Certainly still the economy is on the mend. There will be certainly some slippages there but the magnitude I don't see to that extent.Latha: What is the first case of debt write down that might happen, by when do you think in a month we will be here in the first case of sustainable, unsustainable debt getting written down?A: There are still some steps to be taken. One is that overseeing committee yet to be established where these cases are going to be referred to. So, that will take a bit of time. And banks after going through the scheme they are still trying to see the final point as well as somewhere if there is further scope of putting a representation.As I am looking at say, 40 percent provision to be made on the non sustainable are 20 percent overall perhaps we are asking for a bit on the higher side. This is what is my view. At the same time the portion of sustainable debt which is what to be identified to that extent let it continue in NPA's account also in standard category that will make a good impact on the balance sheet.Another last point which I am looking in this is the borrower needs to be tightened a bit more. Of course the bank's balance sheet cleaning and then making higher provision is a good idea but if that 50 percent sustainable debt has to carry forward let there be some more pressure on the borrower to bring in some more equity. If that is also brought into picture it will give a good impact.Latha: You all plan to do that. As bankers you all are not going to give that write down of the unsustainable portion unless the promoters sells off his noncore assets or does something on his side, is that the game plan?A: The 50 percent idea which has been brought into that minimum 50 percent has to be sustainable we will try to see if it is 60 or 70 percent, why not.