Mumbai: Public sector Union Bank of India plans to cap its high-cost term deposits at its 2006 level of Rs18,500 crore and instead focus on retail deposits, chairman and managing director M.V. Nair said.
While admitting the banking industry had a “golden period in the last four years”, which is unlikely to be repeated this year, Nair said his bank’s focus has changed to cope with the “tough time” ahead.
“One major decision we have taken is that we should be liquid all the time. We strongly believe, in uncertain times, we should not overextend,” Nair said. The bank will use only retail deposits to grow its loan book, he said.
The bank will try and raise cost-effective deposits and grow low-cost current and savings account, or CASA. While the CASA level in public sector banks has fallen by 4.2 percentage points in the past two years, that of Union Bank has risen by 2.5 percentage points to 34.86% as of March.
Still, CASA growth for Union Bank is lower than the industry level of 35.76%, which the bank is addressing by aggressively adding customers.
The bank had added 3.6 million customers between fiscal 2006 and 2008. It plans to have 25% of its transaction to take place over the Internet by March 2009, compared with 6% two years ago.
The bank posted a 29% growth in retail deposits in 2007-08. Its wholesale deposits base, on the other hand, came down from Rs18,504 crore in March 2007 to Rs18,120 crore in March 2008.
With a 1.25 percentage point increase in its prime lending rate this year, the bank would be able to improve its net interest margin, which is a measure of a bank’s returns in its core business of borrowing and lending, from its existing 2.63% to 2.80%, Nair said.
The bank reported a Rs330 crore mark-to-market, or MTM, loss in its bond portfolio last quarter, but Nair expects this to come down.
MTM is an accounting practice of valuing financial assets at prevailing market price.
“We have taken an MTM hit in the first quarter but this will not intensify as we don’t expect inflation to go up much from the present level,” he said. Bond yields go up and prices fall with the rise in inflation and interest rates and this situation forces banks to book MTM losses.
The bank is also gearing up for currency futures trading, Nair added.