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Despite sluggish credit and deposit growth in the banking sector, D Sarkar, chairman & managing director of Union Bank of India, is hopeful of achieving the growth targets his bank had set at the beginning of this financial year. He talks to Neelasri Barman & Krishna Pophale on the strategies to help achieve these. Edited excerpts:
Standard & Poor’s (S&P) has lowered the standalone credit profile of UBI, citing concerns over asset quality and high credit cost. What are your comments?
You would like to see your gross NPA ratio falling below three per cent by March 2013. However, as of June it rose to 3.76 per cent. Where are your NPAs headed?
We hope to keep our gross NPAs below three per cent. Demand is still sluggish, as economic slowdown continues. We are monitoring our asset quality on a real time basis and it is a daily affair. Reforms announced by the government have improved sentiments in the market. This will provide a boost in the course of time and even banks will be benefited.
Which sectors are currently under stress?
Sectors like hotels, some steel companies. Besides, construction contractors are not getting their payments on time due to the slowdown.
After last monetary policy review, when the Reserve Bank of India (RBI) had reduced the cash reserve ratio (CRR) by 25 basis points, only State Bank of India had cut its base rate and no other bank followed. Why?
The CRR cut was very small. We reduced our base rate in May but after that we had reduced many times the mark-up we charge over the base rate. We had tried to give a benefit to the customer this way.
Will you consider a cut in the base rate or reducing the mark-up in specific segments?
Have you revised your credit and deposit growth targets?
Not as of now. We are hopeful of achieving 14-15 per cent growth in deposits and 18 per cent in credit. The second half of the financial year will be better.
What is your outlook on net interest margin (NIM), considering it stood at 3.01 per cent as on June 30, compared with 3.10 per cent a year before?
There is a little pressure on current account and savings account (Casa) deposits. Savings growth is more or less moderate. But deposit growth is not at all satisfactory and that is a challenge. We had reduced our base rate and our dependence on bulk deposits. That will give us results. The bank’s Casa share in total deposits was 30.95 per cent as on June 30. We will try to maintain it above 31 per cent. If we do not take much of bulk deposits, I think we’ll be able to maintain our NIM above three per cent.
You had reduced interest rates on home loans and car loans. How is the festival season loan demand?
We are getting responses but the pick-up in loans is not very encouraging at this moment. Till June, our retail loan growth was sluggish but I am expecting it should be over 20 per cent year-on-year growth till March 31, 2013. We are hopeful of achieving it.
What are your expectations from the monetary policy review later this month?
Some CRR cut should be there to boost sentiments. This will also help reduce the cost of deposits. If we see a CRR cut and repo rate cut together, that would be really helpful.
What is your outlook on lending rates and deposit rates?
We had reduced our base rate in May. We are looking at inflation numbers and also waiting for RBI to announce the further course of action. In the course of time, there are chances of reduction in the cost of deposits, as well as lending.
Given that the corporate loan book has slowed and all banks are aggressively chasing retail credit, do you think the credit growth target will depend upon retail loans to a great extent?
Retail loans alone cannot help. There are other proposals coming. But I agree the focus is on retail loans because they are not much subdued at this moment. We are also giving emphasis on loans to small & medium enterprises (SMEs) and agriculture. Taking all these together, we should be able to achieve the credit growth target.
As on June 30, your Capital Adequacy Ratio (CAR) was 11.64 per cent. How do you plan to enhance this?
We have applied to the government to infuse roughly Rs 950 crore and are hopeful that it will consider it this time. With this infusion, my tier-1 capital will be over nine per cent and our overall CAR also improve. We want to maintain out overall CAR at 12 per cent.