In an exclusive conversation with B&E’s Mona Mehta, M. V. Nair, Chairman and Managing Director, Union Bank of India (UBI), talks about the expected growth of the bank in the coming year and the initiatives UBI is planning to take to make retail lending more consumers oriented.
B&E: Is Indian banking industry ready enough to handle the situation if the economic scenario depletes further and the world goes for a second recession?
M. V. Nair (MVN): In the global context, India is the second fastest growing economy (out of the large-sized countries) and has a well-balanced economic structure. It is not highly dependent either on foreign financing or foreign demand, as some other countries. Its banking sector is well capitalised and enjoys a strong deposit franchise. Moreover, Reserve Bank of India has always shown a high degree of flexibility and responsiveness during the past phases of global crisis. So even if the economic scenario depletes further, our banking industry and its regulators would handle the situation well.
B&E: UBI has recently increased its deposit rates by 0.25-1% across various maturities. The bank has also upped the benchmark prime lending rate (BPLR) by 0.5% to 12.25% from 11.75%. How will this impact UBI’s margins going forward?
MVN: During second half of the previous year loan growth was better than the RBI’s indicative projection and was outpacing the deposit growth of banks. This also led to structural liquidity deficit and warranted higher incentive for savers. Thereafter banks augmented the pace of deposit rates cycle which yielded favourable response from the public. While the lending rate also increased, they lagged behind the deposit rates in quantum terms. Secondly, we have also experienced that deposits contracted at lower rate in earlier period have higher propensity for repricing during increasing interest rate cycle. Thus, margins will definitely be impacted. Factoring this, we have indicated net interest margin (NIM) of 3.20% for the current fiscal compared to 3.33% in the previous year.
B&E: UBI’s gross non-performing assets (NPAs) declined from 2.79% in September 2010 to 2.68% in December 2010 and further to 2.37% as on March 31, 2011. How do you expect the bank to perform on this front this fiscal?
MVN: Our NPAs had peaked in September 2010 when gross NPAs to gross advances ratio was 2.79% and slippages for the quarter were Rs.1,130 crore. There was a steady decline in slippages to Rs.765 crore in Q3 and then to Rs.406 crore in the last quarter of the previous fiscal. Consequently, our gross NPAs stood at 2.37% as on end-March 2011. Hereafter, asset quality has positive outlook and we see gross NPAs at around 2.0% by March 2012.
Read more.................
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age WomanIIPM's Management Consulting Arm-Planman Consulting
B&E: Is Indian banking industry ready enough to handle the situation if the economic scenario depletes further and the world goes for a second recession?
M. V. Nair (MVN): In the global context, India is the second fastest growing economy (out of the large-sized countries) and has a well-balanced economic structure. It is not highly dependent either on foreign financing or foreign demand, as some other countries. Its banking sector is well capitalised and enjoys a strong deposit franchise. Moreover, Reserve Bank of India has always shown a high degree of flexibility and responsiveness during the past phases of global crisis. So even if the economic scenario depletes further, our banking industry and its regulators would handle the situation well.
B&E: UBI has recently increased its deposit rates by 0.25-1% across various maturities. The bank has also upped the benchmark prime lending rate (BPLR) by 0.5% to 12.25% from 11.75%. How will this impact UBI’s margins going forward?
MVN: During second half of the previous year loan growth was better than the RBI’s indicative projection and was outpacing the deposit growth of banks. This also led to structural liquidity deficit and warranted higher incentive for savers. Thereafter banks augmented the pace of deposit rates cycle which yielded favourable response from the public. While the lending rate also increased, they lagged behind the deposit rates in quantum terms. Secondly, we have also experienced that deposits contracted at lower rate in earlier period have higher propensity for repricing during increasing interest rate cycle. Thus, margins will definitely be impacted. Factoring this, we have indicated net interest margin (NIM) of 3.20% for the current fiscal compared to 3.33% in the previous year.
B&E: UBI’s gross non-performing assets (NPAs) declined from 2.79% in September 2010 to 2.68% in December 2010 and further to 2.37% as on March 31, 2011. How do you expect the bank to perform on this front this fiscal?
MVN: Our NPAs had peaked in September 2010 when gross NPAs to gross advances ratio was 2.79% and slippages for the quarter were Rs.1,130 crore. There was a steady decline in slippages to Rs.765 crore in Q3 and then to Rs.406 crore in the last quarter of the previous fiscal. Consequently, our gross NPAs stood at 2.37% as on end-March 2011. Hereafter, asset quality has positive outlook and we see gross NPAs at around 2.0% by March 2012.
Read more.................
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age WomanIIPM's Management Consulting Arm-Planman Consulting
