Mumbai: The fifth largest public sector lender Union Bank of India, with over Rs 3.55-lakh crore in assets, has said its financial inclusion project, called the ‘new bankable class´, will turn profitable sooner than expected.
“Going by our experience with the financial inclusion project, which we call ‘banking for the new bankable class´, this will turn in profits sooner than later, especially when the cash transfer facilities under Adhaar scheme starts flowing in,” Union Bank chairman and managing director MV Nair said.
Nair, who recently got a three-month extension after completing his tenure, said, “For us, this is not a loss making business. Some of the segments such as remittance facilities for the migrant labourers as also those for the milk and fruit vendors, under the inclusion project are already profitable.
The MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) payments may remain in loss for some more time but then the government is subsidising it.”
He said the bank got into this business three-four years ago, well before the government and the Reserve Bank began pushing it and made it mandatory from the last financial year.
“At Union Bank, we always believed in the opportunity at the bottom-of-the-pyramid and our innovative approaches have worked well so far and we hope this will continue to be so. This has given us the confidence to move into financial inclusion space well in advance.
In FY11, the state-run lender crossed the business milestone of Rs 3,55,000 crore, recording a annual growth of 22.1%. Its advances grew by 26.3%, substantially higher than the industry growth of 21.4% and much above the RBI projection of 20%. Deposits recorded 19.1% during the year.
On credit growth, large corporate and retail advances grew by 34% and 20% respectively, while agriculture loans recorded a growth rate of 14% in FY11, he said.
He is also confident of clocking a better loan growth of 23-25% in FY12 and a deposit growth of 20-22%, though he says that the industry as a whole is likely to witness lower growth this fiscal.
On the margins front, Nair said the bank is likely to achieve the guidance level of 3.25% for FY11 and expects this fiscal to be a tad less at 3.10%. “Net interest margins of banks will remain under some pressure during the year as full impact of higher rates on deposits is felt during this year. However, we are hopeful of maintaining our NIM at 3.10% level by continued focus on CASA deposits,” Nair said.
In FY11, our advances logged in a solid 26% growth, and we are targeting 23-25% for FY12. On the deposit side in FY11 it was 19% and for FY12, target is to 20-22%,“ Nair said.
On branch expansion, he said, as of end March 2011, the bank had over 3,000 branches and would be opening 400 more in FY12, including 150 specialised financial inclusion branches.