The Government’s Emergency Credit Line Guarantee Scheme (ECLGS), which enabled lenders to provide additional term loans/ working capital to business enterprises and MSMEs, and the Reserve Bank of India’s Resolution Framework 1.0 and 2.0 for lenders and borrowers to deal with Covid-19-related stress, have played a major role in getting the economy back on its feet , says Rajkiran Rai G, MD & CEO, Union Bank of India (UBI).

In an interaction with BusinessLine, Rai emphasised that the above measures also had a beneficial social impact.

The UBI Chief says India Inc and banks have generated healthy profits and cash flows in FY22, leaving them in a good position to expand business and deal with challenges. Capability-wise, India Inc is ‘wearing much better shoes to run’ in FY23, he quipped.

Rai, who will be retiring on May 31 after close to five years at the helm of the public sector bank (PSB), shared his views on the benefits of the amalgamation of Andhra Bank and Corporation Bank with UBI, and the importance of digital banking.

Excerpts

RBI had asked banks to be watchful of the credit behaviour of restructured advances. Do you think trouble could be brewing on this front?

The restructured book is not that big for the banking system -- it is about Rs 2.20 lakh crore. Here again, the corporate restructured book within that is not that big. So, the restructured book comprises mainly retail and MSME (micro, small and medium enterprise) accounts.

According to our data, more than 50 per cent of the retail book has completed moratorium and come to normal repayment. So, there isn’t much slippage there. These accounts have behaved well. Even the restructured book has behaved well.

As for the MSME book, about Rs 70,000 crore would have been restructured. These are rough numbers. So, MSME is the segment where we will have higher slippage, even in the restructured book. But from the overall perspective, it is quiet small.

You should consider the beneficial social impact of restructuring. Had restructuring not been offered, some of the retail customers would have lost their houses. So, even if a small percentage of accounts slip, it is okay…Even if 5 per cent of the restructured MSME accounts slip, it is okay for us and we recognise this.

MSME is where the RBI is concerned about slippage. A number of interventions have happened in the segment, particularly the ECLGS. But for this scheme, many MSMEs would have lost their businesses at peak of the pandemic. MSME slippages will not prove disruptive for large banks. Just a miniscule portion of the restructured book will become non-performing.

What are the takeaways from the amalgamation of Andhra Bank and Corporation Bank with UBI?

The amalgamation, which was effective from April 1, 2020, was seamless, whether on the product, process, technology or HR fronts. This is reflected in our financial performance. But as a CEO, the satisfaction is that my colleagues and I have prepared the bank for the next five years. It is thinking right today. All the technology platforms are ready. They are taking off one by one. Today, two-plus-two equals five for us. The talent pool of the consolidated bank is much better than that of the standalone bank. We have good talent competing for top positions. Today, when we conduct interviews, we have a choice (problem) of plenty. That is the benefit we are deriving. Every vertical head has lots of freedom to think creatively on how to take the bank forward.

Earlier, as a standalone bank, a loan of Rs 2,000-3,000 crorewas big for us. But today, a loan of Rs 8,000-10,000 crore is normal. So, size-wise, we are able to take much bigger calls as our capital has grown and our capacity to assess and handle large exposure has grown. Our risk-taking capabilty has gone up. So, consolidated PSBs are able to take on a much bigger exposure. But many corporate customers have also consolidated their banking relationships -- earlier they had 10 banks in their consortium, now they are trying to reduce it to 2-3 banks. That is because banks are able to take a higher share. That is much better. We have better control. So, these changes are gradually happening. Our single and group exposure limits have doubled post-consolidation.

What changes have you brought about in the last five years in UBI?

Since our credit underwriting was weak, we put in place a robust credit underwriting mechanism. In the retail portfolio today, 83 per cent of our book has a 700-plus CIBIL score. The remaining are new-to-bank customers. So, they don’t have a credit bureau score. In the case of corporate and NBFC exposure, most of the book has a rating of ‘A’ (investment grade) and above. When the credit underwriting is good, naturally, accounts will not get stressed.

We have brought in a lot of structural changes. A mid-corporate vertical has been created. Besides, a marketing vertical (customer acquiition group) has been set up with an employee strength of 1,000. Every regional office has a marketing set-up. In addition, a subsdiary -- UBI Services Ltd -- was activated last year to undertake marketing for the bank. The commission that was paid to the agent or direct selling agent, is now paid to this subsidiary. So, the sourcing part, mainly retail loans, low-cost (CASA) deposits and to an extent MSME loans, also have been strengthened.

We have also built a technology-based credit monitoring mechanism to track the health of the accounts.

A strong recovery department, which is again technology-driven, has been set up to monitor bad loans. Call centres reach borrowers over the phone if there is a 30-day default in their account or if EMI is due. These call centres also have outsourced agents (feet on street) who connect with the borrower if he/she does not respond to phone calls. There are Standard Operating Procedures governing their operation.

In FY17, the bank posted net profit of Rs 556 crore. And in FY22, we logged a profit of Rs 5,232 crore. Provision Coverage Ratio at that point of time was about 51 per cent and today it is about 83 per cent. During these five years, we also incurred losses due to higher provisions. We have also raised capital. Return on equity, which was in the low single digits, has reached double digits. Return on Average Assets is 0.5 per cent today (0.1 per cent in March 2017). Net NPA, which was at 6.57 per cent, is now at 3.68 per cent.

So, Union Bank has made great strides in most financial parameters.

Will digital banking not result in staff surplus in PSBs?

I don’t think so. People will move to sales. Now, if you look at private sector banks, the majority of their staff in branches do sales. But if you go to any PSB branch, the majority of staff in the branches pass vouchers. This can be done digitally. So, PSB branch staff will also have to move to sales. Many of them will be part of our marketing set-up, and will become customer relatonship managers.

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