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The Kolkata-headquartered United Bank of India has been in huge financial stress. But the management is very proactive about recovering and are hopeful about its high turn-over by March 2019. Their corrective measures include reorientation of balance sheet and emphasis on loans to retail, agriculture and MSME. Constant watch to check new slippage has been undertaken. Pawan Bajaj, MD and CEO of the UBI, in an exclusive interview with BE’s Kishore Kumar Biswas talks about the major issues related to the bank and the sector.

Q. Please tell me briefly from a banker’s point of view how you look at the Indian economy. Has the turnaround started?

A. If you talk of a turnaround of the banking sector then yes, a turnaround has started. We see capital is coming to the banking industry wherever necessary. We are able to maintain the required regulatory capital, that is, the banking industry has enough capital to meet Basel III norms. But if we come to capital for growth there are problems. The big problem of the industry is its high level of non-performing assets (NPA). For NPA, particularly after the RBI’s February 12th circular, the restructured standard account of many banks has become NPA. Because they had come out of CDR as they were not earlier. Earlier many of them were good accounts. In our case we have sent two cases to NCLT. At the same time, we on our own sent some cases to NCLT. So, things are changing for the banking sector. Already two cases have been decided. We are hopeful that the other five to six cases will be decided in the coming quarters.

Q. Many big bankers think that for industry the worst is over. Whereas the RBI is now saying in its recent financial stability report that NPA will rise and capital adequacy ratio will fall in the coming financial year. Do you think these to be contradictory?

A. I am not saying these are contradictory. We cannot know what’s on the mind of the RBI. If more capital becomes NPA and whether it due to its more stringent rules we have to wait and see. In the February 12 circular, the one-day defaulter rule is also there. Under this new rule it is natural that more and more corporate NPA may come up.

If NPA rises, more capital is required as there will be more provisioning in many categories like, D2 or D3.

Q. What about recapitalisation?

A. We have already received Rs. 2634 crore as regulatory capital from the union government. Then from two settlements we have recovered Rs. 487 crore and Rs. 188 crore. We are satisfied about the recoveries as we have been able to recover about 85% of the capital. In this situation recovery of 65% or more of the loan amount is satisfactory. As we are maintaining regulatory capital it will help us to grow more. We will get interest from the deposit. That will also increase our capital base.

Q. Operating profit of most banks, though positive, has decreased in the last quarters. This is considered a serious concern. How do you see the matter?

A. Actually to follow the RBI’s February 12 circular, an additional amount of about Rs. 3000 crore in our bank moved to the NPA category. We could not reverse the interest component from the earlier date. Then we have to incur interest loss from the current income only.

This is not an alarming thing. It is because all these small components have come in one go. So the effect of February 12 circular, G-sec movement, etc. are the reasons behind this. Otherwise the operating profits of banks would have been much better. Here international factors are also coming as interest rates in the US are rising. That has an effect on Indian rates of interest. So we have an impact of 50 basis points. Actually it is a notional loss. That is if we want to sell the security then there may have some impact. But we may not do that. If those are sold at the time of maturity then that will be made up.

Q. What is your progress with regard to recovery of
bad loans?

A. I mentioned that we have recovered these in only two cases. We already have 40 other cases. Out of that in one case we have 88% recovery and in the other case we have 100% recovery as we had full provisioning for that. This quarter is very important for us. Whatever will come to us as recovery will strengthen our balance sheet. All these 40 cases are consortium loans.

Q. It is known that in case of consortium loan or joint loan, one of the main problems is to take initiation for recovery process. As the process needs 3 to 4 levels decision making and sanction of at least 66% (of the total loan) creditors’ nod. This is a lengthy process and the recovery process is being delayed. What is your take on this? 

A. It is a time bound process. At first, 180 days is time bound. But that may be enhanced by another 90 days if it is required. So 270 days are required. There are some RBI cases. Out of those we have 19 cases. We hope that these will be decided within this quarter. Actually in liquidation these take time and may take two years or even more.

In the coming days, AMC will take initiatives. It is a new concept. An independent AMC would be set up and AIF (alternative investment fund) would raise funds from institutional investors. The fund will cover the bad loans from the banks. AMC is a formation of the PSBs. Any PSB can come in this body if it thinks so. AMC will intervene in matters for resolution of loans above Rs. 500 crore.

Q. At least three officers of your bank have been promoted to almost highest level of other banks in the last few months in spite of your bank being comparatively small. What is the mantra behind this achievement?

A. We have taken a lot of corrective measures in the last two years as a part of management policy. The reorientation of balance sheet, our emphasis on loans to retail sector, agricultural sector and medium and small enterprises have been effective. The growth of retail loan is high and NPA in this sector is very low. In corporate loans, we are not increasing much- Rs. 80 to 100 crore is the maximum exposure. Even then credits are only to high rated accounts, not below investment grade. We have reduced our corporate book also. We are not taking any high cost deposit. CASA has been increasing- now almost 48%. That is, cost of our deposit is low and it is a very favourable point for us. In the coming days, we will get government funds. We will turnaround by March 2019.