Union Bank of India inaugurated its first overseas branch in Hong Kong on Friday. In an interview to Venkatesan Vembu
Union Bank of India inaugurated its first overseas branch in Hong Kong on Friday. In an interview to Venkatesan Vembu, bank chairman M V Nair says the high interest rate environment will pose challenges for Indian banks in the year ahead. Excerpts:
Why did you choose Hong Kong to locate your first overseas branch?
We decided to go global two years back. We wanted to be strong in our home country before we ventured abroad. We have very good numbers to support us in terms of asset quality, profitability etc. And our tech platform is excellent.
We factored in the fact that India and China will be major players for the next 20 years.
Hong Kong was the most appropriate setting, since trade between these countries was substantially being routed through Hong Kong. The regulator has also been very supportive.
As they venture abroad, are Indian banks at greater risk from from the global financial turmoil, from which they’ve been insulated until now?
True, we were insulated because we were not operating outside. But then again, the banking practices we follow in India have stood the test of time. For instance, we have never diluted our loans to value ratio. When you go overboard in diluting some time-tested banking norms, you will get into problems.
How challenging will it be to operate in a high-interest rate regime, and how severely are your treasuries tested?
On the treasury side, with mark-to-market, we’ve taken a hit of about Rs 340 crore. That is one major challenge. RBI says it is targeting 7% inflation rate, and in case they get that right, by and large the interest rate scenario should help get some of these provisions back.
What is of greater concern is that because of high interest rates, there is every possibility of slippages — and NPAs — increasing... We’ve brought down our delinquency from 1.9% two years ago to about 0.8% in the first quarter of this year (fiscal). For this year, we are targeting 1%, although it will be difficult. The real test will be this year.
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