Union Bank to buy Rs 5,000 crore mortgage-backed retail loans from NBFCs

Union Bank of India will buy loan portfolios worth Rs 5,000 crore from non-bank lenders in the third quarter of FY19.

The loans will largely comprise mortgage portfolios in the retail segment.

"We have a budget of buying Rs 5,000 crore to be bought in Q3, of which 50 percent is already done. This is a way of providing liquidity. They have created assets but the liability corresponding is short term so now this is getting converted into long-term, so this will help them," said Rajkiran Rai G, Chief Executive Officer and Managing Director of Union Bank of India.

Rai said they appreciate this is needed and over the next 3-4 weeks the rollover of the commercial papers (CPs) debt obligations will be over, after which things should be back to normal.

Banks buy good portfolios

Portfolio buyouts is an immediate liquidity infusion move that public sector banks including State Bank of India (SBI) have assured.

Earlier this month, SBI said they have room to buy a total of Rs 45,000 crore. This is nearly Rs 30,000 crore higher than the initial estimate of purchase of Rs 15,000 crore worth of portfolios.

Rai's comments came in the financial results press conference.

In Q2FY19, the government-owned Union Bank made a profit of Rs 139 crore as against a loss of Rs 1,531 crore in the September quarter last year.

During the quarter, the bank's exposure to NBFCs and housing finance companies (HFCs) stood at Rs 35,581 crore, 11.8 percent (from 11.6 percent at the end of June quarter) of its total advances.

Rai said several mortgage-backed loans are coming to the bank from NBFCs at a good price now and this slowdown in the non-banking sector is an opportunity for banks to grow.

IL&FS exposure

On loans to IL&FS (Infrastructure Leasing and Financial Services), the Union Bank chief said it does not have exposure to the parent company but to the thermal power plant owned by its subsidiary with a total exposure of Rs 1,100 crore, which is a standard asset on the books with repayments on time.

IL&FS has been in the news since August for defaulting on its short-term debt obligations in the CP market.

Rai said he does not see a threat in the ongoing liquidity crisis in the NBFC sector. "We do understand they have some asset-liability mismatches particularly by way of rollover of CPs...We have assessed our exposure and we are not foreseeing any defaults from that data available with us."

Growth guidance

Rai expects the bank's net interest margins (NIMs) to improve to 2.25 percent for the full financial year 2018-19.

As on September end 2018, domestic NIMs stood at 2.18 percent as compared with 2.19 percent.

Net interest income grew 7.5 percent during the quarter to Rs 2,494 crore.

The bank's cash recoveries and upgradation jumped 180 percent to Rs 1,615 crore and this is expected to improve over the next two quarters.