Union Bank scripts credit card, private equity plans

MUMBAI: State-owned Union Bank of India is planning to enter three new businesses, chairman and managing director M V Nair said. These segments are general insurance, credit card and private equity.

“After we finalise our life insurance venture, we will take up the mutual fund business — for which we are already speaking to a couple of foreign companies for a joint venture. We’ll then look into entering businesses like general insurance, private equity and credit card,” Nair said.

While the bank plans to foray into general insurance in 2008-09 (April-March), the timeframe for entering the credit card and private equity segments is not yet firmed up, he said.

The bank had last year signed a memorandum of understanding with Bank of India and Japanese insurance major Dai-ichi Mutual Life Insurance. Bank of India is the majority shareholder in the venture with 51% stake, 26% is held by the Japanese insurer, while 23% is owned by Union Bank.

The bank expects its loans to grow at about 15-16% in the first six months of the current financial year, while it aims for a 25% growth in credit for the entire year, Nair said.

“Credit growth has slowed down in the industry, in line with the Reserve Bank of India’s projection of 25%. We have not gone overboard with credit in the last financial year. We were more cautious. The stance remains the same for the current financial year,” he said.

At the end of September, the bank’s outstanding loans are seen at Rs 66,000 crore, and the figure is likely to touch Rs 80,000 crore by March 31.

Nair said the bank had changed its deposit strategy last year with increased focus on core deposits, and it will maintain the stance. “We are aiming to contain the growth of wholesale deposits, which were at Rs 18,300 crore as on March 31. Core deposits are seen growing at 25% during July-September, which may end the year with 28-30% growth. Total deposits are expected to register a growth of 23% this financial year,” Nair said.

However, the focus on low-cost deposits may not reflect in better margins, as interest rates on deposits rose during the June quarter, Nair said. “Focus on low-cost deposits should have made a reasonably good impact on our margins, but the impact will not be seen this year as interest rates on deposits had risen substantially in the first quarter due to competition. And to that extent, we could not pass it (higher interest rates) to borrowers.”

On the retail side, higher deposit rates had made savings depositors shift their resources to term deposits. This higher cost will also keep margins under pressure for the current financial year, he said.

The bank, which had net interest margin of 3.11% at the end of the June quarter, may not able to maintain that level for the entire year.

“The Q1 figures cannot be seen as a trend as it has the advantage of benchmark prime lending rate going up, whereas the cost effect would come later in the year. For net interest margin, we have a target for 3.05% for this financial year,” Nair said.

To maintain its margins at the projected level, the bank is working on two strategies—to maintain current account growth over 30% and savings deposit growth at 25%, he said.

Union Bank, is in the process of opening offices in Shanghai, Hong Kong and Abu Dhabi.

“This year, we are opening three foreign offices. Depending upon the experience, we’ll come out with a four-year action plan for global presence in the beginning of the next financial year,” he said.