The perception that public sector banks do not attract talent as they cannot pay money is no more relevant to- day, said M.V. Nair, chairman and managing director of Union Bank of India. Nair claimed at a certain level public sector banks match and even offer better sala- ries than competitors in the private sector. Edited excerpts: In the June quarter, Union Bank's profit dropped, bad assets grew and business shrank.
What's happening?
The quarter-to-quarter analysis in the banking context is not a right analysis to do.
What's the right thing to do?
The moment you focus only on the quarter numbers, you will be missing the medium-term and long-term view of an organization. A bank is an organization that has got not only the profit motive, but also the motive of supporting the economic growth, and you miss that out totally if you look at only the quarterly numbers.
Having said that, quarterly numbers are also important, but there are issues which may get factored in a particular quarter's number.
You started the year with a 26% credit growth target; you brought it down to 22% and again to 19%.
But actually in the first quarter, it shrank by 3.6%.
You are absolutely right. The guidance that we have given is 18% credit growth, reduced from 19%. The policy rate has gone up 11 times since March 2010 and there is a clear focus on bringing down the loan demand to fight inflation. The growth has started tapering off. In a situation like this, when the interest rate is running very high, a banker should tread very cautiously.
That's the first important message for a banker.
After having grown for three consecutive years at 5 percentage points higher than the industry, we have taken a very conscious call that the credit growth in the bank will be somewhere closer to 18%.
Does that mean that companies are asking for credit and you are saying no?
It's not like that because you need to keep relationships with corporates. The existing relation- ships where credit enhancement is needed and justified, we are fully meeting that. And 18% is a good growth rate; it's not small growth. The need of the retail segment is taken care of.
The clear shift in our focus is agriculture and we are very focused on small and medium enterprises as well. We are not denying credit to our existing customers, but when the growth it- self comes down, the credit growth is also expected to come down.
What's your take on interest rates? Have we reached the peak?
Right now, inflation is not at the comfort level of RBI (Reserve Bank of India)--9.2%. It's expec- ted to be at this level as per our internal reading until November, and may be going forward, it will come down to 7% by March. The Reserve Bank has made a point that growth with an elevated in- flation is not the new normal and it is focusing on 3-4% inflation in the medium term. So, it clearly gives an indication how the Reserve Bank is looking at interest rates.
So, more rate hikes?
I would like to explain it slight- ly differently. There is a time lag between a rate hike and its im- pact to be seen. We have seen the June quarter GDP (gross domestic product) numbers--7.7%.
It's below the projected 8%, but still quite high. What it means is growth itself may not be a major concern for Reserve Bank even today. Our reading is that there is a possibility of a one-time in- crease of 25 basis points in policy rates and that could be the end of it. Post-March 2012, the inter- est rate cycle may start coming down, unless some major events take place globally.
It's below the projected 8%, but still quite high. What it means is growth itself may not be a major concern for Reserve Bank even today. Our reading is that there is a possibility of a one-time in- crease of 25 basis points in policy rates and that could be the end of it. Post-March 2012, the inter- est rate cycle may start coming down, unless some major events take place globally.
In the first quarter, your deposit base shrank by 1.6%.
Yes, actually even deposit growth target has come down in alignment with the projection of the Reserve Bank. We have quite a few technology-based interventions that have enhanced our ability to get quality accounts. So what we are trying to do is enhance Casa (current and savings accounts) and reduce the high- cost deposits because the interest rates have gone up substantially. In the medium term, we will hold on to our cost structure with a margin which is adequate to support our growth.
You said that you will grow your lowcost Casa. In the first quarter, your Casa actually dropped by 106 basis points and its drop is more than the overall drop in deposits.
That's right; as I said do not look at the first quarter. One of the key focuses of the Union Bank is the government busi- ness. The government flows are substantially higher in the last quarter. But how exactly would our position be by the end of this year? Our Casa should be some- where in between 33% and 34% by the end of March 2012, up from 31.5% now. That's where we want to reach.
Your Casa has fallen and so has your net interest margin (NIM).
It is down if you compare this with the last quarter of last year, but compared with the first quar- ter of last year, it has gone up.
The comparisons have to be proper. Last year's 3.33% NIM was over and above 2.7%, which we had in the previous year. The guidance that we had given for the year is 3.2%. It's a good num- ber and we will be able to achieve.
Your feebased income is down.
Yes, there is a very interesting story to tell. For four consecutive years, we had recorded core fee- based income growth of 35% CAGR (compounded annual growth rate).
Fee-based income itself can be divided into few parts. One is treasury-based, which goes by the overall market, and the second is recovery.
Other than that is the core fee income and that is where your new products that you opt for or new areas you enter become im- portant. Union Bank entered into quite a few new areas. These had led to 35% CAGR growth of core fee income. I see no reason why it should not be similar as we prepare for the next phase of growth.
Your net profit was down 22.8% as you had to set aside money for bad assets. Your nonperforming as sets (NPAs) have grown. Gross NPA is now 2.5% of your advances and net NPA 1.32%. Will you be able to achieve projected 2% gross NPA by the end of the year.
It's absolutely achievable. You should look at the whole year.
Strategy wise, we had factored in how our numbers are going to change as today we have full control on the way the slippages are taking place. Up to September, the possibility of slippages is expected to be higher.
About 4% of loan assets are re structured loans.
Post-September, our NPAs are expected to steeply drop. You may ask me how do I know this.
You know, the standard account itself gets classified into three categories--early alert system one, early alert system two and special mention account. Even if one instalment is pending, it comes in the early alert system one. Our focus is to closely mon- itor all these accounts and that's how we have projected these numbers.
In 2008, the gross NPA was 2.18%; in 2011, after going through a difficult period, it is slightly higher. As a public sector bank, when many other banks withdrew, we went on lending.
Globally, every bank had stopped extending credit in 2009.
But here we took a view to lend. I was the chairman of IBA (Indian Banks' Association). Every 15 days we used to monitor all pub- lic sector banks and see how much sanctioning has been done to the productive sectors so that the wheels of the economy keep going. We were taking a risk there, but it is a worthy risk to take as otherwise there would have been a loss of jobs. There are many issues that need to be factored in and in spite of that af- ter four years, if our NPAs are coming down, we should be happy about it.
You have shifted to systemgener ated NPAs.
We are moving from a legacy system to the totally technology- enabled system. It's a big chal- lenge; like any other private sec- tor bank, we are starting with a clean slate. Union Bank has 30 million accounts. We put in place CBS (core banking solu- tion) in 2008; now we are clean- ing up our entire data and mov- ing into a technology-based system. During this period, the MIS (management information sys- tem) will get into some fine-tun- ing, NPA will be fine-tuned and clean data sometimes may show up higher NPA, too. It can happen.
Your plan is to have 400 branches during fiscal 2012. But in the first quarter, you could open only 22 branches.
We have a well-planned strategy to open branches. The opening of branches has to be linked to the availability of manpower.
Unless we recruit people, there is no point in opening branches because you have a branch in a potential centre. If you don't adequately provide manpower to exploit the potential, then opening a branch has no meaning.
Post-December, we will start opening the branches, even though they will be kept ready.
The IBPS (Institute of Banking Personnel Selection) recruit- ment system will give us man- power only in December. Out of 400 branches, 100 are financial inclusion branches that will open by December. They are one-man, two-man branches.
The IBPS (Institute of Banking Personnel Selection) recruit- ment system will give us man- power only in December. Out of 400 branches, 100 are financial inclusion branches that will open by December. They are one-man, two-man branches.
You are one of the CEOs who have been very strongly advocating marketrelated salaries. Why do you have to wait for IBPS to supply people?
As of now, we are bound by the government guidelines and we have to advertise on all-India basis and based on the applications that come in, we can recruit. Union Bank can also go for an advertisement recruit, but that would involve lakhs of people to be interviewed for which IBPS is very eminently positioned.
You do poach other banks also.
We do take from the campus and also from other banks. When I need credit officers or treasury mangers, we advertise and take from other banks. It's a multiple way of recruitment. Right now, we are in the process of recruit- ing about 50 charted accountants.
Do you see any merit in the argu ment that banks should have their own wage system and the indus trywide wage system should be dismantled?
It will take time because the government has to look at it.
There are merits in both collec- tive bargaining as well as indi- vidual handling. In the last five years, we have covered a lot of distance. Today up to scale III, which is the largest number of our staff, we are matching or we pay better than some of the competitors.
You mean private sector?
Yes, that's the reason when we advertise for scale I officers, we get great response.
You are talking about cost to com pany. In that case, even a public sector bank chairman's cost to company will be comparable with the private sector.
Absolutely. The compensation-based argument for not get- ting talent is no more relevant. Today, when we advertise, we get lakhs of applications. We are able to pick up the best people. You have said that you want to give the best experience to cus tomers in retail banking. I have been in this bank for six years. As a chairman, my role is to set a vision for the bank and bring in transformation to pre- pare the bank fit for the future.
Today, we have 350 million customers serviced by the entire banking industry. In the next 10 years, we are expecting 350 million young customers joining. It's a totally new segment. The bank that has prepared for it will succeed. We are experimenting with branch...you are interacting with my staff, you operate the ATM, you may call my call centre, you may operate on the Internet or you may use mobile phone banking. All five channels are available to you. I want to see you as a customer who constant- ly experiences customer services in Union Bank through any of these channels.
I should not have a luxury to say “I have put up an ATM why don't you move there?.
You are the chairman of an RBI committee to look into priority sec tor lending.
What are the changes that you are likely to recommend?
The committee has just set up now and it has very eminent members. The terms reference are to review the guidelines that we have in place and look at the norms and if need be, make recommendations for new norms.
We would like to interact with large number of stakeholders and then only we will firm up the recommendations. While it is true that the priority sector norms are there for a long time, one important thing to understand is that today 50% of farm- ers are not given credit, almost 80-85% of the micro entrepre- neurs are not getting credit.
Which segments to be brought in is an issue we may have to debate.
We would like to interact with large number of stakeholders and then only we will firm up the recommendations. While it is true that the priority sector norms are there for a long time, one important thing to understand is that today 50% of farm- ers are not given credit, almost 80-85% of the micro entrepre- neurs are not getting credit.
Which segments to be brought in is an issue we may have to debate.
This is an edited transcript of an interview that was first tele- cast on Bloomberg UTV on Thursday.
(Source - mintlive.com)