Union Bank seeks partner for wealth management

Union Bank of India, which started insurance operations in February, 2009, plans to launch its asset management business in October and is gearing up to enter wealth management business thereafter. The bank is in the process of choosing a foreign partner, which should be one of the world’s top wealth management service providers. MV Nair, chairman and managing director of the bank, shared his plans with Neelasri Barman and Parnika Sokhi. Excerpts:

What are your growth targets for FY11?
The trend is to grow at 5% higher than the industry. That is the minimum. We needed to achieve higher growth and that we have been able to achieve in the last two years.

Similarly, for the next year, Reserve Bank of India has indicated that credit may grow at 20% and so we have targeted 25%. For deposits, we have targeted 22%. Within deposits, current account and savings account (CASA) is very critical for us and this time our CASA ratio has gone up by 166 basis points.

Our medium-term goal, which we had set about three years back, is to have CASA ratio of 35% by March, 2012. Towards that, we would like to have a CASA ratio of 33.5% by March, 2011. These are the growth targets.

As far as the profitability targets are concerned, we are consistently monitoring three numbers. One is return on asset, which we have targeted for 1.25% and we have been getting that for the last three years. Return on equity is the next number we monitor and that is at 25%. The third is the efficiency ratio —- cost-to-income ratio —- and there we are at about 41% and are targeting 40%.

What are your plans for asset management business?
We have an approval from the RBI; we have in-principle approval from Sebi, though the final approval is yet to come. The target is to commence business in October. But then, quite a lot of things have to take place in between. Our team is in place. The CEO is in place and we are in the process of finalising the independent directors, other team members are in place. Now we have to make an application to Sebi for final approval. Once that happens, we should be able to go with our target of offering the first product in October.

You have a presence in insurance, and now mutual funds. Any other area you are exploring?
First, we came into insurance and then we ventured into mutual funds, which is expected to take off by October. Now, we are looking at forming a joint venture for offering wealth management product. We are evaluating. The idea is, once one venture takes off, you start working on the next venture. We are in the initial stages of discussion to form a joint venture for offering wealth management.

Are you looking for a foreign partner there, too?
Yes. We are tying to choose one of the best operators globally. We are in the stage of evaluating various possible partners. By October, we would like to give some shape to this because by then mutual funds would have taken off. We are looking at this space because now in terms of technology we are comparable with the best; our business model is also comparable with the best. We are ready to cater to the needs of the high networth individual group plus growing middle-income group because next decade we expect addition to middle-income group customers in huge number in metro and urban areas.

Now that we have products in place and all channels in place, which appeals to these customers, plus the insurance products are in place and mutual fund products are in place, in case we can get into advisory services, it will be possible for us to position in this particular segment.

Your non-performing assets (NPA) levels increased in FY10. How do you plan to reduce your gross NPA below 2.1% by March 2011?
The slippage was slightly higher than what we had targeted for. We had targeted for a slippage ratio of 1.6% and we ended up with 1.87%, which is understandable because there was restructuring and the year was also difficult. Next year also the strain will be there on the portfolio. Our expectation is slippage ratio will still remain comparable with what was last year. But gross NPA we are targeting to bring down to 2.1%. And our analysis says we will be able to do that as our recovery will be better this year.

Which sectors are primarily contributing to this slippage?
Last year, primarily the strain has come in export-oriented sectors, those dealing in commodities like gems and jewellery. It has also come from sectors like textile, jute, carpets. Similarly, the commodities dealers; those exporting agriculture produces; those importing steel related items where the price suddenly dropped… some of them could not come out of the strain.

How many branches do you plan to open in FY11?
Last year, we opened 247 branches. This year, we are targeting 500. We have licences for up to 500 branches. We need to get people, train them and place them. Then we also have to acquire the premises. That will take the number to 3,300 branches. Overseas, we have one branch in Hong Kong. We will open one branch in Belgium; we are planning to open a subsidiary in the UK and will possibly apply to RBI for a subsidiary in Australia. We will be opening offices in Johannesburg and Toronto.