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Business News/ Industry / Banking/  It may take one or two quarters for things to stabilize at United Bank: CEO Bajaj
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It may take one or two quarters for things to stabilize at United Bank: CEO Bajaj

United Bank of India MD and CEO Pawan Bajaj said the bank will not be able to meet any of the five performance targets set by the Union government for capital infusion this year

United Bank CEO Pawan Bajaj. Indranil Bhowmik/MintPremium
United Bank CEO Pawan Bajaj. Indranil Bhowmik/Mint

Kolkata: Sanctioning of new loans and recovery of old ones at the Kolkata-based United Bank of India have been affected by the government’s 8 November decision to withdraw high-value currency notes, the bank’s managing director and chief executive officer Pawan Bajaj said. Bajaj said the bank will not be able to meet any of the five performance targets set by the Union government for capital infusion this year. Edited excerpts from an interview:

How has demonetization affected your bank’s operations?

We have received Rs12,000 crore in new deposits, and retained Rs8,500-9,000 crore, net of money taken out. Our CASA (current account and savings account) deposits have gone up from 42.5% to 46.5%, creating opportunity for positive spread on a large amount even if we are not able to expand our loan book.

But retail loans have been impacted. Whereas we were disbursing around Rs25 crore every day, it is now down to Rs12-15 crore, with all categories almost equally impacted. To my mind, it may take one to two quarters for things to stabilize.

We were internally looking to recover Rs600-700 crore of NPAs in the December quarter, but because we can’t focus on it now, the actual recovery may fall to Rs500 crore.

Our net interest margin in the December quarter may fall by about five basis points because of the additional CRR (cash reserve ratio) requirement, but gains from treasury operations will compensate. (One basis point is one-hundredth of a percentage point.)

ALSO READ: United Bank of India’s Q2 net profit falls 30% to Rs43.53 crore on bad loans

How has it impacted your plans to raise capital?

We are looking to raise Rs150-250 crore in the March quarter through a qualified institutional placement (QIP) to support loan growth in the next financial year. Though market conditions are not conducive, we have to raise a minimum of Rs150 crore within the current year. That’s a small amount and shouldn’t be a problem.

We had proposed a preferential allotment to LIC (Life Insurance Corp. of India Ltd), but it has not made any commitment to buy our shares.

As a last resort, we can seek Rs200 crore more from the government, but our performance parameters will fall short of the targets set by the government.

What are your expectations from this week’s monetary policy review?

A 25 basis point cut in policy rates has already been factored into bond pricing. People are now betting on a 50 basis point cut.

With gross NPA at 16.26% at the end of September, is there any possibility of a further deterioration in asset quality?

Because there were restrictions on lending previously, our loan book contracted, and that was one of the reasons why our gross NPA rose to that level. Our recovery is now almost at the same level as new loans being recognized as NPAs.

We currently have a restructured portfolio of around Rs3,000 crore, and that’s in line with what the regulator allowed. We still don’t know how this portfolio will shape up going forward. I don’t think this entire amount will remain unrecovered, but by March, we will have fully provided for it.

The local steel sector (in West Bengal) accounts for these loans almost entirely. The sector suffered from a glut, and suddenly, the price fell sharply. Still, we should be able to recover 25-30% of this amount.

How have your lending practices changed?

We do not have any restriction on lending anymore except a cap on CD (credit-deposit) ratio, which cannot exceed 70%. With new deposits coming in lately, our CD ratio has come down from 59% to 53%.

We have decided to make loans selectively and keep our exposure within Rs50 crore to any single borrower. If the requirement is more, we are happy to join the lenders’ consortium. Our target is to expand our loan book by around 8%, lending mostly to individuals and to small and medium enterprises.

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Published: 06 Dec 2016, 01:44 AM IST
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