Union Bank CMD confirms: Smaller AQR list to free up Rs 800cr

In a virtual confirmation of recent reports that the Reserve Bank of India had trimmed the list of companies that should be included in banks' asset quality review, Union Bank Chairman and Managing Director Arun Tiwari says the move should be looked at as a "correction" of stricter norms prescribed earlier."We went to the regulator saying that some of these accounts are okay and the regulator agreed with us," he told CNBC-TV18 in an interview, adding that the relaxed AQR list would mean Union Bank would save about Rs 800 crore by way of provisioning not needed now.The AQR is an initiative that the RBI had taken ahead of the third quarter last year where it had sent out a list of indebted companies to banks, and had asked them to make partial provisioning for such accounts. The move led to a sharp increase in provisioning and fall in profits for banks during the third quarter.However, recent reports that claimed that the central bank had sent out a fresh list for the fourth quarter, in which it had excluded names of certain companies such as JP Associates.Below is the transcript of the interview on CNBC-TV18.Latha: I just wanted to ask is there a bit of relief that the Reserve Bank of India (RBI) has provided allowing you not to provide in cases where corporates have shown the zest to sell off core assets?A: No, why should we call it relief. If the norms are straight forward like arithmetic statement, these accounts should have not been provided for or they were not non-performing assets (NPA). Therefore, the regulator will agree for -- not out of any compassion.Latha: I am only saying that there were a list of assets identified under the asset quality review but some of them have been taken off at least provisionally, we understand. Does that bring you relief?A: No, when this list was circulated in December last year. Even at that point in time we had certain accounts, which were not to be stressed or NPA or even borrowing NPA but regulator took a call, they gave us a list but they gave us a reprieve that 50 percent you have to provide in last quarter that is Q3 and remaining 50 percent in Q4. So whatever we thought the accounts which were good enough and up and running, we kept them for Q4 and went to the regulator with a certification from our auditors that these all accounts are okay and quite rightly so, regulator agreed for it. Therefore, you call it respite or correction -- either ways.Sonia: Can you quantify for us in any way how much this could ease the pressure for banks like yours?A: For my bank, it is about Rs 800 crore.Latha: Can we expand it to your overall NPA level, would it be less -- would the incremental slippage be less in Q4 than in Q3?A: Audit is still on. So, I won't be able to comment on that because it is up to the auditors how they look at the accounts.Latha: Broadly is there a sense?A: By and large, the slippage should be in the vicinity, they were in Q3, a little more or little less that is a question.Sonia: What is the exact exposure that Union Bank has to some of these groups, JP Group, Essar Group, GMR Group, GVK Group?A: Of these, JP and Essar would come in top10 and GVK may not come in top10.Sonia: The quantum of exposure?A: Essar would be about Rs 2,500 crore -- put together group -- and some of them have been already made NPA in the previous quarters. Even JP Group is not in the top10. We didn’t have much of the exposure in JP Group.Latha: We know the top10 highly indebted groups, the ones that Credit Suisse has spoken about, we had asked other banks as well, Axis has about 8 percent of its loans to the highly indebted groups. What is Union Bank's exposure to the top10 indebted groups?A: Then I will talk about my top10, not the industry top10. When I said Essar, it is within one of my top10 but other two are not even my top10.Sonia: The reason I am asking is I am trying to understand what is the rationale behind the RBI pruning this list. Is it purely because there was some assurance of debt reduction or deleveraging from some of these groups or as some analysts point out, perhaps it could also be because of the way metal prices have recovered, that could be one of the reasons and if that is then it just pushes the problem to a later stage?A: I will put it this way, the intent of the promoter if at least two of the groups -- they have been deleveraging for last one and a half to two years, we see every alternate month, they are selling off some of their assets. So perhaps taking them out I feel that is quite a judicious decision that when the intent of the promoter is good enough and they are walking the path, they had promised to the lenders, I think that is good enough because none of us have got a divine right to kill the economic value of the project or the economic value of the enterprise.Sonia: Can you take us through your own asset quality and what you expect to see going ahead. Because your gross NPAs are alarmingly high at more than 7 percent, is there any relief that one can expect over the next couple of quarters?A: The moment we talk in terms of percentages, we should be talking more in terms of absolute numbers. If the growth or denominator we have been containing so in terms of percentage, it will go up but I can go back to four-five quarters. If we normalise asset quality review (AQR) we have been on that downward trend for the last five quarters or so. So even Q4, I think AQR or no AQR, we will continue to do what is expected as of to do.Latha: How is the good book growing, are you seeing a decent amount of credit demand, what is your credit demand number?A: Credit demand for the industry per se it should be in the vicinity of about 12-14 percent and if you look at our numbers -- I will go back six quarters consecutively, our loan book has been growing in retail agri and MSME in last six quarters and our emphasis will continue to remain there. From that point of view, my loan book should grow about 10 percent because as a cardinal principle, what we have done, it is not the topline, it is the risk weight assets we have been continuing. I am too pleased to share with you, ours is the lowest in the industry risk weight assets whether we compare with the peer group or all scheduled commercial banks.Latha: There are a bunch of strategic debt restructuring (SDR) cases, how many of them do you have and have you found buyers in any of them?A: No, nothing new has come up. Whatever we shared last time around, nothing new has come up on the table.Latha: You could find buyers for any of the stressed assets?A: Yes, there are buyers and we are progressing on that path.Latha: What are you expecting from the bank board bureau? We had Vinod Rai speaking about employee stock ownership plan (ESOP) and other kind of performance related compensation for bankers, that was one of the things he said at the National Institute of Bank Management (NIBM) speech.A: I happen to be at NIBM that day and to me whatever he spoke, ESOPs is one of the last things. The more moot point is they talked about NPA, they talked about recognition of NPA, they talked about resolution, they talked about the pressures at times mounted on taking even the judicious decision or in the hindsight questioning those decisions. To me they were two important issues which they were very emphatic about.Latha: So should we expect banks will be proactive about taking haircuts when you find a buyer for a stressed lower?A: Yes, why not. Whatever is judicious, we should be ready to take that on. The value we can realise today may not be there tomorrow.