Cannot say asset quality concerns behind us: Union Bank CMD

Despite posting better than expected fourth quarter results, Debabrata Sarkar, CMD, Union Bank of India says, it cannot be said for certain that all the asset quality concerns are behind the bank. 

The public sector lender on Wednesday reported a 29.3% rise in net profit for the quarter ended March 31, on the back of healthy recovery from bad debts and lower employee cost, even though it had higher provisioning this time around.  Net profit for the quarter stood at Rs 773 crore, against Rs 598 crore reported in the corresponding period a year ago. In the fourth quarter, the bank had restructured assets worth Rs 3,236 crore, whereas the total restructured assets stood at Rs 11,879 crore. Sarkar says the bank restructured assets from telecom, state electricity board and steel sectors. "Power sector accounted for nearly Rs 1,800 crore of the Rs 3,236 crore worth loans restructured during the last quarter. Going forward, we expect this to come down," Sarkar says. Going forward, he adds, some SEB restructuring could happen in first quarter of FY13. "The sectoral slowdown continues to be a concern," he told CNBC-TV18 in an interview. During 2011-12, the lender grew its loan book 18.30% to Rs 1.81 lakh, and deposits went up 10.08% to Rs 2.22 lakh crore. "In the current financial year we expect to grow our loan book and deposits 17% and 19%, respectively," Sarkar says. Below is the edited transcript of his interview on CNBC-TV18. Also watch the accompanying video. Q: Margins have seen slight compression in the Q4. Do you expect more pressure in the current quarter, in the first half of FY13? A: On a quarterly basis, we are certainly doing well, but pressure is always there. Therefore, we have indicated that we are trying to maintain our net interest margin above 3%. We can avert low yielding advances. We can concentrate more on retail, SME and agriculture businesses where basically I feel that average rate of return will be helping us. Also, I would like to increase my current account, savings account (CASA) deposit, especially with a good network of branches and the delivery channel. We will boost up our CASA and the low cost deposits. This is our strategy to maintain NIMs over 3%. Q: Can you take us through your restructured portfolio? Which were the dominant segments and how are they shaping up for the current quarter? A: Restructured asset is over Rs 11,000 crore. Our restructured assets are basically in two-three sectors, telecom, SEB and steel sector. I don’t feel there is a lot of pressure. I hope that financial parameters will be improved in these corporates. Q: What the restructuring pipeline looks for the coming quarter Q1FY13? With respect to SEBs, are we done with complete restructuring on the SEB front? A: Pipeline is there, no doubt about it. I feel that some of the corporates may come. But I think the amount will not be very big. Q: What about slippages? How much was it in this quarter? Have we seen worst of the asset quality issues behind for the bank? A: I cannot tell that it is over. Everybody knows that the economic slowdown is a great concern for all the bankers, not only ours. But at the same time, because all other signals are not very congenial at this moment, especially the economic factor, we are taking all precautions. In our bank, we have already instructed. Our people are on the job to take this NPA position on real time basis. There is no question of apprehension as such, but at the same time we are very much conscious to keep the slippage under check. Two esteemed executive directors are already on the job. First quarter is always little bit subdued. But if the monsoon is good, I hope that the situation certainly will improve and bankers will be benefited out of it. Q: You had some capital infusion coming in. What is your current tier I? Going forward, what will be your capital requirements, considering that under the new BASEL III rules, whatever has not been provided for pension will have to be provided from tier I capital. A: Presently, my tier I capital is 8.37%. We are comfortable with it. The tier II headroom is also there, but we did not raise the tier II capital as liquidity was there. Also, if the loan growth is good, suddenly there may be negative carry. That was one of the reasons. At this moment, capital is not a concern. Last year, certainly the government was considering to infuse the capital, but it did not happen. This year, we may expect some capital from government. That will boost up our tier I capital. Q: What can you guide by way of a growth in loans and deposits for FY13? A: Deposits, we are planning for around 17% growth. Loans, we are planning for 19% minimum. That is basically in tandem with the RBI expectations for 2012-13.