Union Bank of India plans to raise Rs 1,386 crore through qualified institutional placement (QIP) by the end of FY15. Speaking to CNBC-TV18 on same, CMD Arun Tiwari says the bank will prefer doing the QIP when market price will be equal to book value as the bank is no hurry to raise funds.
The state-owned bank has already received all the necessary clearances from the Reserve Bank of India and shareholders to raise funds.
Union bank is targeting net interest margin (NIM) of 2.9 percent by the end of this financial year after improving them to more than 2.5 percent in June quarter. The bank also expects to cut down its gross non-performing assets (NPAs) to below 4 percent in FY15 after rising to 4.27 percent in the quarter gone by.
Below is verbatim transcript of the interview:
Q: What are your fund raising plans? Is the figure of Rs 1,300-1,400 crore correct and will this suffice all your capital requirements?
A: The guidelines, which you have given for the current financial year for our increase in the loan portfolio, even our present level of capital would be sufficient for raising this QIP of Rs 1,386 crore.
We have got the permission but we would go to the market at appropriate time and at the appropriate level of the price. We are not in hurry.
Q: What could be an appropriate price for you to consider a QIP for Union Bank and secondly, what will it bring your tier I ratio to from the current 7.37 percent post the raising?
A: Talking about Rs 1,386 crore what we said was the right price, if you look at our book value which is at about Rs 268-269 and at the current level what is in the market. Since we are not in hurry, we would look for at least that level.
It would also increase our capital by 50-60 bps. Having said so, more than capital raising from the external sources what we have been harping up on for the last six-eight months, that capital should come in from internal generation.
We are more focused on addressing wherever we can save money from our adjusting balance sheet structure. We have been able to clean up a couple of things which has given us about 21 bps up in the capital.
Also, we are now more focused on whatever accretion happens in our asset portfolio, we are more focused on risk weights. Going forward that has been our strategy in last six months or so, we are increasing our loan portfolio where capital charge is lesser. Therefore, more focus on retail, agri and MSME.
Q: There is so much news regarding the new norms for the wilful defaulters, what is your take on it? Do you think it gives banks more teeth and are there any entities that you would now be looking to declare wilful defaulters?
A: It is very welcome prescription from the RBI. This is a medium to long-term process to fix the structural deficiencies - we are in the business of lending and will continue to lend. Our issue is wilful defaulters.
The default may happen for genuine reasons, we are sensitive to them and will continue to help them out but that segment of borrowers, which are - I won’t mind saying the thicker skin and who take the advantage of the vulnerability of the system.
A borrower lends money in Delhi, secured by properties in Bombay, goes to third state, take the exemption from the court. So these are the issues which come in way of recovery processes.
Having said, what is required to be done, giving those tip to the lenders wilful default, yes, about a month back, not that the large ticket sizes about 7-8 borrowers we made wilful defaulters.
Going forward also, we have about 20 odd not big ticket ones borrowers where we are initiating the process of wilful defaulters.
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Q: Is there any name that you would want to share with us?
A: Not really. Let the process be completed but we will not mind going to the public as well.
Q: For the last two quarters, you have reported a 5 bps each improvement in your NIMs, can you improve your NIMs further and what according to you would be the exit rate as you end FY15, what will be the NIMs?
A: We are looking at NIM of Rs 290 by the end of this financial year and our intent has been to rebalance our loan portfolio on one side and liabilities on the other side.
If you look at the factors like retail, agri and MSME - our growth in these three sectors has been in 30-32 percent range. This was about retail portfolio if I take up that, it was just about 8.5 percent of my domestic loan book, which has gone up to now 11 percent.
These three portfolios, retail, agri and MSME about a year back, there were again 40 percent of my domestic loan book which has gone up to now 45 percent of my domestic loan book.
Q: Recoveries last quarter were closer to that 300 mark but could they be higher going forward especially since you would now be chasing more wilful defaulters?
A: It is not just chasing wilful defaulters. For the first six months in last financial year, our default was to the tune of Rs 3,200 crore. In the later half, it was about Rs 2,100 crore. In the last quarter it has gone down from Rs 1,446 crore to Rs 1,200 crore.
Even if you could recall when we give the guidance for our restructuring pipeline at the end of last FY results, we were anticipating about Rs 1,500-1,600 crore restructuring but eventually it was just about Rs 465 crore.
So, there is a deceleration in the incremental NPAs and coupled with that, all the efforts, which we are making better credit monitoring, better underwriting, going after the bad borrowers, it is showing the results. You also spoke about cleaning of balance sheet.
We do create a pool to sell it to ARCs but again when we have the valuation of the underlying security and if we do not get the right kind of value, not that we will sell it off eventually, last quarter we had made a pool of eleven accounts but eventually we sold off just two accounts for Rs 300 crore.
Q: You spoke about deceleration in incremental NPAs, can your gross NPA slip below 4 percent mark from the current 4.27?
A: FY14-15 it will be below 4 percent.
Q: Have you sold any loans to ARCs in Q2 or are you planning to in this quarter or next?
A: Last quarter we had made a pool of eleven accounts but eventually we sold just two accounts because we knew the value that we were getting was not the right value. So we thought that if we do it ourselves maybe it will take little longer but we would be able to do much more than the ARCs.
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