Covid may not have serious impact: Rajkiran Rai, Union Bank CEO

Union Bank, Rajkiran Rai, lockdown, Union Bank of India, bad loans, MSME, NPA, pcr, union bank ceo

After its merger with Corporation Bank and Andhra Bank,

Union Bank of India

has become the fifth-largest public sector bank by assets, bigger than Bank of India or even private sector Axis Bank. It has been no exception to the glitches associated with mergers, but chief executive Rajkiran Rai tells Joel Rebello and MC Govardhana Rangan in an interview that the lender has a definite plan on what it would look like five years down the line. Edited excerpts:

You have customers across the country. How are they impacted by the Covid-19 second wave? What is your assessment?

This time the disruption is short. We started opening up in June, so April and May should not matter to business, but it depends on how long it takes to come back. If businesses take three months, it will have an impact but if we can get back to normal in June-end or July, things can recover quickly. High-contact sectors like hotels would be impacted. Banks always factor in a small percentage as defaults even in normal times, so it may not have a serious impact and will be within our appetite.

One unknown is the magnitude of bad loans. It is being compared to the worst we have seen in the 2012-15 period. How bad could it be this time?

This time the stress is not in the corporate book, which is nearly 50% of loans for any big bank, and that book is pretty stable. The maximum impact has been in the MSME sector, which is about 18-20% of the banking system, around ₹20 lakh crore. Even if 10% fall behind in the worst-case scenario, it is just ₹2 lakh crore, which can be absorbed very easily. Then there will be restructuring, and some may recover, so the final numbers will come down. In 2012-13, the large accounts failed. One account had ₹40,000 crore, so 10 accounts meant the whole system collapsed. This time we do not have that issue.

The first quarter is almost behind us. How do you view this fiscal year in terms of growth?

I feel growth will be much stronger in the second half. We will see some recovery in the second quarter but a robust recovery in the second half like last year when we covered up for the loss in the first half. We are also hoping a major segment of the population will be vaccinated by September, which will further add to the momentum. Our book is divided approximately by half between corporate and retail, agriculture and MSME. Last year, the corporate book was shrinking but the other half grew at 8%. That’s why we ended up negative. This year we expect retail growth to improve as the year goes by. We will have double-digit growth in retail and agriculture, while MSME will grow at 5%-6%. So, half of our book on average will grow at 8%. We also expect working capital loans to pick up and corporate loans to grow by 7% to 8%.

How huge could the provisioning be for bad loans?

We have projected provisioning requirements at 2%, which means it will be between ₹12,000 crore and ₹13,000 crore, whereas our operating profit will be more than ₹20,000 crore, so we have sufficient cushion. The main advantage of ageing provisions with a PCR (provision coverage ratio) of more than 80% is that all my legacies are almost provided for now. Today, I have ₹80,000 crore in cases at the NCLT with a provision cover at 97%, which means the scope to write back is much higher.

All banks, including UBI, have raised exposure to higher-rated corporates at the cost of lower-rated ones. Are banks depriving credit to those who need it the most due to risk aversion?

Yes, it is a fact that banks have moved towards higher-rated companies because the NPA percentage is directly linked to the rating of borrowers. But we still have sufficient products for MSMEs. Even in these depressing times, our MSME growth is 3-4%. Under ECLGS, we have sanctioned ₹9,700 crore and disbursed more than ₹8,700 crore.

You have integrated the other two banks. How do you see Union Bank five years down the line?

We are building to be a digital bank. Ultimately, most of the transactions will move away from branches to the digital platform. The purpose of amalgamation was to build a strong and robust bank in which we have been successful in the last one year. Our balance sheet has grown, and we have made an operating profit of more than ₹5,000 crore each quarter, which gives us the strength to deal with any losses. We have been able to adopt technology much faster, which would not have been possible if all the three banks were separate.

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