Union Bank of India is a public sector unit with 60.85% share capital held by the Government of India. The bank came out with its Initial Public Offer (IPO) in August 20, 2002 and institutions, individuals and others hold 39.15% of the share capital.
Mr. Ratnakar Hegde started his career in Vijaya Bank in 1967 after obtaining University degrees in Humanities and Law. He has wide experience as a field functionary at all hierarchy levels upto Regional Head and exposure to various functions in Corporate Office, notably Credit (Review and Recovery), Planning and Economic Research, etc. He is the Executive Director of Union Bank of India since February 2004. Mr. Hegde brings to the job a practical approach based on a thorough grasp of organizational processes, all round knowledge of banking and in depth understanding of market trends and macro economic developments.
Speaking to Mr. Ashutosh Narkar of India Infoline, Mr. Hegde said that the talks about a merger with Bank of India are still rumors. He also discussed the bank?s strategies going forward.
Interest rates have been going up for a while. 10yr yield has come down a few bps recently, however it is still 70bps above the September levels? How do you see it impacting your business?
Although G-Sec fields have come down a bit recently we believe there is still some pressure on interest rates. As a result, we have increased deposit rates across various tenors at 25 bps. On the lending side although we haven?t increased the reference rate for floating loans, we have increased rates by around 50 bps on all new loans coming under sub-PLR category. We have also increased the rates by 25 bps under floating segment and 50 bps for fixed category for all schemes under Retail Lending category.
Your bank refrained from transferring securities to the held to maturity category? What would be the expected impact on the bank?s bottomline at these interest rate levels? How does the bank plan to tackle this issue?
The unrealized gains on our book have now been wiped off, and now we would have to provide for our capital losses and investment depreciation. This should pull our bottomline down by around Rs3.9bn. But we along with other banks have given a presentation to the RBI that we should be allowed to use Investment Fluctuation Reserves (IFR) and shift the securities under a portfolio basis as in the case of US GAAP. However, the need for lesser provisions for NPAs and higher recovery of NPAs should offset this loss.
Union Bank has seen compression in its net interest margin? How does the bank see it going forward?
The pressure on margins was due to continued fall in yields on advances. Our recent increase in interest rates should help us halt the yield slide. The increase in rates on loans as stated above should enable us to maintain NIM at 3.2%.
Your bank has shown good growth in business for the half year? What are your growth targets for the full year?
The bank last year did a business of Rs800bn. This year we have set ourselves a target of business worth Rs1,000bn. This would be contributed by a growth of Rs100bn from advances and Rs100bn from deposits like wise. We believe this is possible due to a strong credit pick up in the economy.
We are concentrating on improving our incremental credit deposit ratio. For the first half, we have achieved a ratio of 96% and we believe with the busy season going well, we would be able to improve the ratio to 100%.
Can you please clarify on the bank?s stance on the proposed merger with Bank of India?
We continue to maintain our stance that till date there have been no talks on such a merger. All heard and said are market rumors.
In the event of such a merger happening how do you see synergies building through this merger?
I am in favor of consolidation in the banking industry. One needs to have certain size going forward to leverage the cost advantage. The merger if happens would help both the banks to improve their market position. For Union Bank in specific, the merger would give us ready access to foreign markets where Bank of India has presence currently. This will also enable us to access cheaper funds from overseas markets. We feel Bank of India would gain from increasing its market share and we can help cleaning up its balance sheet. The combined manpower need would be lower than the current status and rationalizing this would help us improve our profitability.