Union Bank of India reported its second-quarter numbers. There has been a problem of stress and write-offs being elevated but the bank's net interest income growth momentum aided their profit growth.

Deposits grew 3.15 percent year-on-year (YoY) and 0.6 percent quarter-on-quarter (OoQ). Slippages though high, fell in the last quarter to 4.3 percent at Rs 6,745 crore versus Rs 7,049 crore QoQ.

Throwing more light on the numbers and outlook, Rajkiran Rai G, MD & CEO, Union Bank of India said they had one of GNPA of SREI which is almost close to Rs 2,600 crore and if one would take that out, the run rate of NPA slippage has come down substantially.

"The collection efficiency is also close to 95-96 percent levels. So, the stress issues are almost behind us," he said.

The restructured book for the bank stood at Rs 21,000 crore, so when asked if there could be trouble from there, Rai G told CNBC-TV18 that out of this Rs 21,000 crore, the corporate restructuring is around Rs 6,000 crore.

"The remaining comes mostly from personal loans and then the MSME," he said.

"Personal loans for the bank is mostly housing and mortgage loan, which is practically backed and mortgaged by their own houses. So, don’t see any problem there. We are also seeing the behaviour of these restructured loans that the repayment period because of COVID was elongated and so came under restructuring and there is no other structuring on the loan side except for giving them some moratorium on the repayments," he added.

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“I don't see much problem on this restructured book. Since our legacy issues are over, the aging provisions have come down and we have sufficient cushion in our operating profit to take small slippage whenever it happens,” said Rai.

On the loan book, he said there are two parts, one is the retail agriculture and MSME (RAM) and there the growth is close to double digits and every quarter we have that growth.

"It is basically the corporate loan book where we have some negative growth, which is pulling down our loan growth," he said.

"On corporate loan, it is more short-term credit since we do not have much investment credit happening. Moreover, the short-term interest rates are very low because of the huge liquidity, so, it is a cost for the bank. That is if you want to grow corporate credit on the short-term market then you have to offer very low rates, which has an impact on the net interest income and NIM, so it is a choice between your growth and compromising on your margins. This is a call that every bank has to take if you want to grow then you have to lend at very low rates," he explained.

He said their projection for net interest margins (NIMs) is around 3 percent.

"The interest rate cycle is close to the bottom now and repricing of the liability side is continuously happening. So our advantage is that deposits are coming at much lower costs but the advances are also not picking up to that extent. So NIMs around 3 percent is what we can expect," he added.

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When asked about when the National Asset Reconstruction Company (NARC) would become operational from and what would be the first tranche of transfer from the bank to NARC and the impact on the book be, Rai said that NARC is at an advanced stage and that they have got the license from RBI.

"The board is getting constituted and they almost have a full board now and the process of evaluating the assets and offering a prize will take place in the next few weeks," he said.

“By December-end and or January, we should see the first tranche of accounts being taken over by any NARCL Coming to Union Bank, we have identified close to Rs 8,000 crores of assets, which will move to NARCL in the first tranche subject to the approval. There is a return of book in this and so, maybe the impact on GNPA will be something between Rs 3,000-4,000 crore but it is not factored into our projections as of now for March’22,” said Rai.

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He further said they are identifying another Rs 4,000-5,000 crore of assets because of the new guidelines of RBI, the accounts which are classified as fraud also can be shifted.

"So, there is another list of accounts that are getting ready," he added.

For the entire interview, watch the video

(Edited by : Anshul)