Union Bank of India can manage impact from RBI project finance draft if implemented: A Manimekhalai

Union Bank of India

Union Bank of India (UBI) managing director and chief executive officer, A Manimekhalai on May 11 said the lender will be able to manage the impact if the Reserve Bank of India's (RBI) tighter draft project financing norms were implemented.

“We assume that as and when RBI finalises the guidelines, the impact that is going to come on the bank will be very very manageable number,” Manimekhalai said during the post earnings press conference.

According to the draft norms, when a project is in the construction phase, the lenders would have to set aside a provision of five percent of the loan amount. This will reduce to 2.5 percent once a project is operational. The required provisions will further be cut to one percent after the project has adequate cash flow to repay current obligations.

The lenders are required to make a five percent provision in a phased manner: Two percent in FY25, 3.5 percent in FY26, and five percent by FY27. Currently, lenders are required to have a provision of 0.4 percent on project loans that are not overdue or stressed.

Also, banks should have clear visibility on the date at which a project is expected to begin commercial operations and increase provisions in case operations are delayed. Any delay over three years in beginning an infrastructure project should change the classification of the loan from standard to stressed.

The RBI also asked the lenders to ensure strict monitoring of any emerging stress.

Further, Manimekhalai added that bank’s 28 percent of corporate book is only project finance, out of which 68 percent of the financed projects are already completed. “We are seeing visible cashflows,” she said.

The financials

On May 10, UBI reported a 19 percent on-year growth in its net profit to Rs 3,311 crore in the fourth quarter of the financial year 2023-24. This is on the back of better asset quality and increase in interest income.

Interest income of the bank in the January-March quarter grew 19.75 percent on-year to Rs 26,350 crore.

In the reporting quarter, gross non-performing asset (NPA) ratio of the bank stood at 4.76 percent, as against 4.83 percent in a quarter ago period, and 7.53 percent in the year ago period.

Net NPA ratio stood at 1.03 percent as on March 31, as compared to 1.08  percent as on December 31, 2023, and 1.70 percent as on March 31, 2023.