'Majority of Union Bank's NPAs are from stalled projects': Arun Tiwary

Are corporate frauds going up? What steps are banks taking to protect the accounts?

Frauds have not gone up but the detection of frauds has. Banks have beefed up their fraud monitoring and detection mechanism. But RBI is now saying that if one lender declares an account as fraud then all banks with an exposure to the particular account will have to sit and decide. Banks are now getting proactive. It is not fair on the system if some banks report fraud and others do not. RBI has also come out with the exhaustive white paper on fraud detection and reporting which will further encourage banks to report frauds.

Why did your banks' quarterly net profit come down by 23.4%?

The operating profit has gone up by Rs 600 crore. Of this, the tax outgo was Rs 200 crore and another Rs 400 crore was provision for non-performing assets or the bad loans. Though NPAs have come down, when the NPAs mature the provisioning also goes up. About 58% of our total NPAs are from the stalled projects. Once the projects go on stream, all these accounts will be earning interest for us. Tide will turn in our favour. Key ministries involved in the stalled projects are in dialogue on how they can collectively put the stalled projects back on stream.

Have the NPAs peaked for the bank?

NPAs are certainly coming down. In September quarter, the slippages were Rs 1,968 crore and it came down to Rs 1,738 crore in third quarter ended December 31, 2014, and for the fourth quarter the bank saw slippages of just Rs 1,547 crore. If you look at recoveries, they have been robust with Rs 738 crore in September, and have gone up to Rs 1,112 crore in the fourth quarter. And one must remember that there has been no bullish growth in credit. The provision coverage ratio has also climbed to 59.23% in the fourth quarter from 57.97% in the second quarter. We have sold Rs 740 crore (worth of bad loans) to the asset reconstruction companies (ARCs) during 2014-15 and Rs 335 crore in the fourth quarter.

What happens on the restructuring front?

For the whole year 2014-15 we did a restructuring of Rs 5,002 crore, and the restructured accounts that ceased to attract higher provisioning were Rs 2,975 crore, which has become standard. We have a pipeline of Rs 1,300 crore loans to be restructured where applications have been received in March from the power sector and road projects. In the fourth quarter, Rs 2,366 crore (worth of loans) were restructured, out of which Rs 840 crore is from a single account.

The bank has also brought down bulk deposits sharply?

We have retired about Rs 18,362 crore of high-cost deposits during 2014-15. In March 2014, the bulk deposits were 12.60% of the total deposit base, now it has come down to 5.79%. Even within, we are looking at the savings bank which has grown 9.92% over the previous year, and the weekly average growth in our savings bank is about 10.5% over the previous year, which is one of the highest in the industry. So the focus is not on the current deposits where the branches at the end of the fourth quarter were getting large deposits into the current accounts that can vanish in the next couple of days. We have put a stop to such practices and the cost of funds is gradually coming down.

On the credit side, where would be the focus be?

We are very definite that the focus will be retail, small and medium enterprises (SME) and agriculture, and all the 4,081 branches will have to perform. These segments have gone up by 24% year on year. Large loans and large deposits are not enough. We need to spread our risk and expand our customer base. We have excess investment in government bonds (statutory liquidity ratio, or SLR) at around 27%, about 4.5% higher than the statutory requirement. We are trying to bring down these investments by putting more money into loans.

Have you funded any projects under the 5:25 scheme? (5:25 is a popular financing scheme introduced by the RBI that allows banks to extend long-term loans of 20-25 years to match the cash flow of projects while refinancing them every five or seven years.)

We have funded four projects. Nobody wants to kill the economic value of a project that is on the ground. We have no right to kill it. If it can be salvaged, it should be. If the cash flows are supportive, we need to provide support. In most large infrastructure projects, the loan agreements were such that if the project life is 25 years, bankers squeeze the repayments in 15 years.