Tag: union bank of india

Corporates prepay loans, shrink banks’ loan books, BFSI News, ET BFSI

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Corporates that are flush with cash on account of booking bumper profits are looking to deleverage their bank loans and prepaying them.

HDFC Bank has received Rs 30,000 crore in prepayments through the Jue quarter, mainly from companies in the commodities and infrastructure sectors.

For companies that have run loans for more than two years, there is no prepayment penalty for business loans.

In the April-June quarter, AAA or AA-rated companies sought to deleverage as they recorded solid cash balances. Cash flows were robust at commodity companies because of record iron ore or aluminium prices, boosting net profits. Infrastructure companies, too, reported fatter bottom lines due to the government’s extensive highway-building programme.

With demand collapsing during pandemic and uncertainty rising, companies had put a pause on expansion and have focused on becoming debt-free.

PSU loan books shrink

The deleveraging has led to a drop in corporate loan demand for banks, especially PSU ones.

The domestic corporate loans by the State Bank of India fell 2.23 per cent to Rs 7,90,494 crore in the quarter ended June 30, 2021, compared to Rs 8,09,322 crore in the same quarter last year. In the first quarter of FY21, SBI reported 3.41 per cent growth in corporate advances.

Union Bank of India‘s share of industry exposure in domestic advances dropped to 38.12 per cent at Rs 2,40,237 crore from 39.4 per cent at Rs 2,47,986 crore in the same quarter a year ago. Corporate loans dropped 3% at Indian Bank during the last quarter. At PNB, corporate loans fell 0.57 per cent at Rs 3,264,66 crore in June quarter 2021 compared to Rs 3,28,350 crore a year ago.

Up to May, the gross loans to large industries declined by 1.7 per cent year­-on­year, according to RBI data.

However, HDFC Bank expanded its corporate loans over 10% in the April-June quarter to about Rs 3.15 lakh crore.

Shift to bonds

The corporate world focused on deleveraging high-cost loans through fundraising via bond issuances despite interest rates at an all-time low. This has led to muted credit growth for banks.

Corporates raised Rs 2.1 lakh crore in the December quarter and Rs 3.1 lakh crore in the fourth quarter from the corporate bond markets. In contrast, the corresponding year-ago figures were Rs 1.5 lakh crore and Rs 1.9 lakh crore, respectively.

Bonds were mostly raised by top-rated companies at 150-200 basis points below bank loans. Most of the debt was raised by government companies as they have top-rated status.

For AAA-rated corporate bonds, the yield was 6.85 per cent in May 2020, which fell to 5.38 per cent in April 2021 and to 5.16 per cent in May 2021.



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Public sector banks’ corporate loans decline in Q1 as Covid, competition hurt, BFSI News, ET BFSI

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Lending to the corporate sector by public sector banks declined significantly in the first quarter as Covid kept the demand depressed and competition from private sector banks and the bond market rose.

The domestic corporate loans by the State Bank of India fell 2.23 per cent to Rs 7,90,494 crore in the quarter ended June 30, 2021, compared to Rs 8,09,322 crore in the same quarter last year. In the fi rst quarter of FY21, SBI reported 3.41 per cent growth in corporate advances.

Union Bank of India‘s share of industry exposure in domestic advances dropped to 38.12 per cent at Rs 2,40,237 crore from 39.4 per cent at Rs 2,47,986 crore in the same quarter a year ago. Corporate loans dropped 3% at Indian Bank during the last quarter. At PNB, corporate loans fell 0.57 per cent at Rs 3,264,66 crore in June quarter 2021 compared to

Rs 3,28,350 crore a year ago.

Up to May, the gross loans to large industries declined by 1.7 per cent year­-on­year, according to RBI data.

Ceding ground of private-sector rivals

The market share of public sector banks in loans declined to around 59 per cent (of all scheduled commercial banks’ outstanding credit) in December 2020 against around 65 per cent in December 2017.

However, during this period, PvSBs market share rose to around 36 per cent from around 30 per cent, going by Reserve Bank of India data.

Falling industrial credit

The share of banks in loans to the industrial sector dropped massively during 2014-2021 even as credit to the retail sector, including home loans, saw a boom.

As per the data, industrial credit fell to 28.9% by March 2021 from 42.7% at the end of March 2014.

“Over recent years, the share of the industrial sector in total bank credit has declined whereas that of personal loans has grown,” the Reserve Bank of India said in its Financial Stability Report.

The environment for bank credit remains lacklustre in the midst of the pandemic, with credit supply muted by persisting risk aversion and subdued loan demand and within this overall setting, underlying shifts are becoming more evident than before, it said.

Loans to the private corporate sector declined from 37.6% in 2014 to 27.7% at the end of March 2021. During the same period, personal loans grew from 16.2 to 26.3%, in which housing loans grew from 8.5% to 13.8%.

Fiscal 2021

Bank credit growth to the industrial sector decelerated 0.8% year-to-date as of May 21, 2021, due to poor loan offtake from the corporate sector.

Growth in credit to the private corporate sector, however, declined for the sixth successive quarter in the fourth quarter of the last fiscal and its share in total credit stood at 28.3 per cent. RBI said the weighted average lending rate (WALR) on outstanding credit has moderated by 91 basis points during 2020-21, including a decline of 21 basis points in Q4.

Overall credit growth in India slowed down in FY21 to 5.6 per cent from 6.4 per cent in FY20 as the economy was hit hard by Covid. and subsequent lockdowns.

Credit growth to the industrial sector remained in the negative territory during 2020-21, mainly due to the COVID-19 pandemic and resultant lockdowns. Industrial loan growth, on the other hand, remained negative during all quarters of 2020-21.”

The RBI further said working capital loans in the form of cash credit, overdraft and demand loans, which accounted for a third of total credit, contracted during 2020-21, indicating the impact of the coronavirus pandemic.

Shift to bonds

The corporate world focused on deleveraging high-cost loans through fundraising via bond issuances despite interest rates at an all-time low. This has led to muted credit growth for banks.

Corporates raised Rs 2.1 lakh crore in December quarter and Rs 3.1 lakh crore in the fourth quarter from the corporate bond markets. In contrast, the corresponding year-ago figures were Rs 1.5 lakh crore and Rs 1.9 lakh crore, respectively.

Bonds were mostly raised by top-rated companies at 150-200 basis points below bank loans. Most of the debt was raised by government companies as they have top-rated status.

For AAA-rated corporate bonds, the yield was 6.85 per cent in May 2020, which fell to 5.38 per cent in April 2021 and to 5.16 per cent in May 2021.



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IOB asks Union Bank to buy its stake in Malaysian bank, BFSI News, ET BFSI

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Indian Overseas Bank (IOB) has asked the Union Bank of India to buy its 35 per cent holding in India International Bank, Malaysia, a top IOB official said on Tuesday.

The India International Bank was originally a three-way joint venture between the Bank of Baroda (40 per cent stake), the IOB (35 per cent) and Andhra Bank (25 per cent). The Andhra Bank was taken over by the Union Bank of India as a part of the megabank merger scheme last year.

“We have asked Union Bank of India to buy our stakes. The valuation exercise is going on,” IOB Managing Director & CEO Partha Pratim Sengupta told reporters.

According to him, the IOB had decided to exit the Malaysian joint venture as part of its plan to come out of the Reserve Bank of India‘s (RBI) Prompt and Corrective Action (PCA) fold.

Though Sengupta said the IOB is expecting to be out of the PCA fold as it fulfills the RBI’s conditions, the decision to exit the India International Bank continues to hold.

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IOB asks Union Bank to buy its stake in Malaysian bank, BFSI News, ET BFSI

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Indian Overseas Bank (IOB) has asked the Union Bank of India to buy its 35 per cent holding in India International Bank, Malaysia, a top IOB official said on Tuesday.

The India International Bank was originally a three-way joint venture between the Bank of Baroda (40 per cent stake), the IOB (35 per cent) and Andhra Bank (25 per cent). The Andhra Bank was taken over by the Union Bank of India as a part of the megabank merger scheme last year.

“We have asked Union Bank of India to buy our stakes. The valuation exercise is going on,” IOB Managing Director & CEO Partha Pratim Sengupta told reporters.

According to him, the IOB had decided to exit the Malaysian joint venture as part of its plan to come out of the Reserve Bank of India‘s (RBI) Prompt and Corrective Action (PCA) fold.

Though Sengupta said the IOB is expecting to be out of the PCA fold as it fulfills the RBI’s conditions, the decision to exit the India International Bank continues to hold.

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IOB asks Union Bank to buy its stake in Malaysian bank, BFSI News, ET BFSI

Banking & Finance

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Indian Overseas Bank (IOB) has asked the Union Bank of India to buy its 35 per cent holding in India International Bank, Malaysia, a top IOB official said on Tuesday.

The India International Bank was originally a three-way joint venture between the Bank of Baroda (40 per cent stake), the IOB (35 per cent) and Andhra Bank (25 per cent). The Andhra Bank was taken over by the Union Bank of India as a part of the megabank merger scheme last year.

“We have asked Union Bank of India to buy our stakes. The valuation exercise is going on,” IOB Managing Director & CEO Partha Pratim Sengupta told reporters.

According to him, the IOB had decided to exit the Malaysian joint venture as part of its plan to come out of the Reserve Bank of India‘s (RBI) Prompt and Corrective Action (PCA) fold.

Though Sengupta said the IOB is expecting to be out of the PCA fold as it fulfills the RBI’s conditions, the decision to exit the India International Bank continues to hold.

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Net profit zooms to Rs 1,181 cr, BFSI News, ET BFSI

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Mumbai: Union Bank of India on Thursday reported over three-fold jump in standalone net profit at Rs 1,181 crore for June quarter 2021-22, helped by higher net interest income and improvement in asset quality.

The lender had reported a standalone profit after tax of Rs 333 crore in the year-ago period.

The consolidated profit in the quarter jumped over three folds to Rs 1,120.15 crore.

“The bank’s performance has stabilised and we have seen substantial improvement. After almost three to four quarters, we have seen a normal quarter on the business side.

“Even though we have lost the first two months (of Q1), by June it stabilised. If you look at the numbers, they are very stable except for some heightened NPAs, particularly coming from the MSME side,” bank’s Managing Director and CEO Rajkiran Rai G told reporters.

Net interest income grew 9.53 per cent to Rs 7,013 crore from Rs 6,403 crore in the year-ago quarter.

Net interest margins (NIM) improved by 30 basis points (bps) to 3.08 per cent as against 2.78 per cent.

Gross non-performing assets (GNPAs) of the lender reduced by 135 bps to 13.60 per cent from 14.95 per cent and net NPA was down 28 bps to 4.69 per cent from 4.97 per cent.

Fresh slippages during the quarter stood at Rs 7,049 crore. Around 45 per cent of slippages came in from the MSME sector as it was mostly affected during COVID wave, Rai said.

He said with restructuring and the Emergency Credit Line Guarantee Scheme (ECLGS) facilities, the stress is likely to reduce going ahead.

Under RBI’s Resolution Framework 1.0, the bank restructured Rs 11,965 crore and under Resolution Framework 2.0, total recast during the first quarter was Rs 3,962 crore till June 30.

“We expect another Rs 2,000 crore of restructuring in retail and MSME segments put together in the second quarter,” Rai said.

During the quarter, recovery and upgradation stood at Rs 4,341 crore. It recovered Rs 250 crore of dues related to Kingfisher Airlines. The bank has a recovery target of Rs 13,000 crore for the full year.

Capital to risky asset ratio (CRAR) improved to 13.32 per cent from 11.62 per cent. Common Equity Tier 1 (CET1) ratio improved to 9.77 per cent from 8.40 per cent.

The bank’s deposits grew 1.79 per cent to Rs 9,08,528 crore as of June 30, 2021. Domestic advances rose 0.16 per cent to Rs 6,30,237 crore as at end-June.

It registered 10.61 per cent growth in retail, 12.70 per cent growth in agriculture and 3.33 per cent growth in MSME advances on year-on-year basis. Rai attributed flat growth in advances to large corporate book not growing. He, however, said the bank has a large sanction pipeline and unutilized working capital limits.

“We hope by second and third quarter, the utilisation of limits will go up and expect a credit growth of 8 to 10 per cent by the end of the year,” he said.

On the amalgamation of Andhra Bank and Corporation Bank, Rai said the bank expects a synergy benefit of Rs 3,600 crore over a period of three years. The amalgamation came into effect from April 1, 2020.

In 2020-21, the bank got a synergy benefit of Rs 2,400 crore and it expects Rs 900 crore of benefits in this fiscal year, he said.

The bank’s scrip closed at Rs 37.95, up 6.90 per cent on BSE.



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Union Bank of India net zooms 254% on higher NII, other income

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The lender has strengthened its balance sheet by increasing provision coverage ratio (PCR) by 156 bps to 81.43% in June 2021. Cost to income ratio of the bank improved by 320 bps y-o-y to 46.51% during Q1FY22.

Public sector lender Union Bank of India on Thursday reported a 254% year-on-year (y-o-y) jump in its net profit to Rs 1,181 crore for the quarter ended June 2021 due to a rise in core income and other income.

The bank’s net interest income (NII) increased 10% y-o-y and 30% quarter-on-quarter (q-o-q) to Rs 7,013 crore. Similarly, other income of the bank surged 98% y-o-y to Rs 2,901 crore, which included Rs 256 crore recovery from Kingfisher Airlines during the quarter. The rise in core income and non-interest income boosted operating profit of the lender by 31% y-o-y to Rs 5,303 crore.

The strong performance was despite an 11% y-o-y and 7% q-o-q increase in provisioning to Rs 4,122 crore. Net interest margins (NIM) also improved 30 basis points (bps) y-o-y and 70 bps sequentially to 3.08%. Rajkiran Rai G, MD and CEO of the bank, said that the collection efficiency of the bank had dipped to 82% during the month of April 2021 due to Covid-19 restrictions. “However, the collection efficiency has now improved to 92%,” he said.

Non-interest income of the lender surged due to higher fee-based income and treasury income, among others. Core fee based income increased 41% y-o-y to Rs 1,064 crore. Similarly, treasury income surged 92% y-o-y to Rs 1,214 crore.

The asset quality of the lender remained a mixed bag during the June quarter. Gross non-performing assets (NPAs) ratio of the lender improved 14 bps to 13.6%, compared to gross NPAs of 13.74% in the previous quarter. However, net NPAs ratio increased 7 bps to 4.69% from 4.62% in the March quarter.

The lender has strengthened its balance sheet by increasing provision coverage ratio (PCR) by 156 bps to 81.43% in June 2021. Cost to income ratio of the bank improved by 320 bps y-o-y to 46.51% during Q1FY22.

Advances remained flat at Rs 6.55 lakh crore. “With the expectation of normalcy by September 2021, the bank expects a credit growth of 8-10% by March, 2022,” Rai said.

Deposits grew 2% y-o-y to Rs 9.08 lakh crore, but declined 2% sequentially. The share of current account savings account (CASA) in total deposits improved 309 bps y-o-y to 36.39%, compared to 33.3% in June, 2020. The capital adequacy ratio (CAR) improved 170 bps y-o-y to 13.32% during the June quarter, compared to 11.62% in the year-ago period.

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UBI net profit soars by 255% at ₹1,181 cr

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Union Bank of India (UBI) soared 255 per cent year-on-year (yoy) in the first quarter standalone net profit at ₹1,181 crore on the back of robust growth in other income.

The Bank had reported a net profit of ₹333 crore in the year ago quarter.

In the first quarter ended June 30, 2021, net interest income (NII) was up about 9.50 per cent yoy to ₹7,013 crore (₹6,403 crore in the year ago quarter). 

Other income, comprising income from activities such as commission, fees, earnings from foreign exchange and derivative transactions, profit and loss from sale of investment and recoveries from written off accounts, jumped 98 per cent yoy to  ₹2,901 crore (₹1,462 crore). 

Slippages in the reporting quarter were higher at  ₹7,049 crore (₹1,750 crore in the year ago quarter). MSMEs accounted for 45 per cent of the total slippages, followed by ”large corporate & others” and agriculture (about 20 per cent) and retail loans account (15 per cent).  

Loan loss provisions nudged up a tad to ₹2,492 crore (₹2,451 crore). Standard assets provisions soared 167 per cent to ₹1,096 crore (₹410 crore).

Rajkiran Rai G, MD & CEO, said the Bank expects reduction in gross non-performing assets (NPAs) through recovery & upgradation at ₹13,000 crore, including ₹5,600 crore via the National Company Law Tribunal route, in FY22. In the reporting quarter, the recovery & upgradation was at ₹4,341 crore.

The Bank identified 17 accounts aggregating about ₹7,700 crore so far to transfer to the National Asset Reconstruction Company Ltd.

Gross NPAs declined to 13.60 per cent of gross advances as at June-end 2021 against 14.95 per cent as at June-end 2020.

Net NPA position, however, improved to 4.69 per cent of net advances as at June-end 2021 against 4.97 per cent as at June-end 2020.

Total deposits increased by 1.79 per cent yoy to ₹9,08,528 crore, with low-cost current account, savings account (CASA) deposits proportion in domestic deposits rising to 36.39 per cent from 33.30 per cent as on June-end 2020. 

Gross advances declined 0.77 per cent yoy to ₹6,45,091 crore. Within this, domestic advances edged up 0.16 per cent yoy to ₹6,30,237 crore and overseas advances declining 29 per cent yoy to ₹14,854 crore.

Global net interest margin rose to 3.08 per cent from 2.78 per cent in the year ago quarter.

 

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Private banks too want the bad bank pie, BFSI News, ET BFSI

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With public sector banks queueing up to buy a bad bank stake, private lenders are also looking to invest in it.

Some private banks are seeking approvals to buy into National Asset Reconstruction Company Ltd (NARCL) or bad bank, though their stake will be lower than the PSBs.

Having secured a licence from the Registrar of Companies, the Indian Banks’ Association (IBA) will soon move an application to the Reserve Bank of India (RBI) to set up a Rs 6,000-crore National Asset Reconstruction Company Ltd (NARCL) or bad bank.

The process

With the registration of the company, the process for putting an initial capital of Rs 100 crore is on as per the guidelines, the sources said adding that the next step will be audit and then move an application to the RBI seeking a licence for the asset reconstruction company.

The RBI in 2017 raised the capital requirement to Rs 100 crore from the earlier level of Rs 2 crore keeping in mind the higher amount of cash required to buy bad loans.

Legal consultant AZB & Partners has been engaged for seeking various regulatory approvals and fulfilling other legal formalities.

The initial capital would come from eight banks who have committed, and the NARCL would expand the capital base to Rs 6,000 crore subsequently after the RBI’s nod.

Other equity partners would join after the RBI’s licence and even the board would be expanded.

SBI veteran to steer

IBA, entrusted with the task of setting up a bad bank, has put a preliminary board for NARCL in place. The company has hired P M Nair, a stressed assets expert from the State Bank of India (SBI), as the managing director. The other directors on the board are IBA Chief Executive Sunil Mehta, SBI Deputy Managing Director S S Nair and Canara Bank‘s Chief General Manager Ajit Krishnan Nair.

Finance Minister Nirmala Sitharaman in Budget 2021-22 announced that the high level of provisioning by public sector banks of their stressed assets calls for measures to clean up the bank books.

Several banks are moving to divest their stake from Asset Reconstruction Companies (ARCs) to free up capital in preparation to launch the bad bank.

Three public sector banks—Union Bank of India, Indian Bank, and Bank of India—said they jointly intend to sell up to 88.4 million shares, constituting up to 90.31 per cent of the total equity share capital of ASREC India Ltd, a Mumbai based ARC.



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How PSU banks are catching up in the digital world, BFSI News, ET BFSI

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– By Amol Dethe & Ishwari Chavan

The banking sector in India, in response to evolving forces of consumer behaviour shift, demographics and technology, has gone through some significant changes in the past decades.

Almost every sector in the economy reflects the massive impact technology has had on them. But the banking sector, in particular, has been aggressively adapting and transforming in the face of constantly evolving technology.

The notion holds that the Public sector banks (PSBs) have lagged their private counterparts in adapting to these changes. But the PSBs have geared up and banking experts believe the future does look good for PSBs.

PSBs adopting tech

The PSBs have already started investing heavily in technology. Artificial Intelligence, blockchain technology, and robotic process automation are the key innovations that are likely to impact the banking scenario in India in a transformative way.

The field of artificial intelligence has produced several cognitive technologies. Individual technologies are getting better at performing specific tasks that only humans could do. It is these technologies that PSBs may focus their attention on. Analytics can improve customer understanding and personalisation. PSBs are in the process of aggressively adopting these technologies that enhance bank and customer engagement.

Speaking at the ETBFSI session on Digital future of PSU Banks, Raj Kiran Rai, MD & CEO, Union Bank of India and V G Kannan, former CEO, Indian Banks’ Association shared their insights and experience on how PSBs are transforming.

Rai said, “Based on the transactions of a customer, these models can predict if he/she can be a potential housing loan customer, a potential vehicle loan customer, or a personal loan customer. So it helps to do targeted marketing. We are still in the initial phases of using it. But we are investing a lot in this.”

Developing skills

PSBs are heavily recruiting the young population while skilling and reskilling them. Rai mentioned that the average age of employees has come down to 38. He added that the “tech-savvy” young can be easily skilled and reskilled through the e-learning modules that are being introduced. Prioritising the employees who can read and analyse large data over traditional number-crunching can be increasingly seen as a pattern.

Among other skills, marketing is one of the most valuable skills for the digital future of PSBs. According to Rai, marketing skills are where public sector employees are lacking. He said things will take off very fast once the digital products are marketed, pushed to customers, and made comfortable to use.

Fast Moving Consumers & FinTechs

VG Kannan, Former Chief Executive, Indian Banks’ Association, said, “The more and more the customers can use these things, the load on the bankers will come down and they can make it more efficient, provide higher interest rate and provide better services at a lower cost. So it’s going to be a win-win for everyone.”
While a large section of the population in India will be comfortable using digital products, banks will still have to maintain a physical presence, especially in rural areas where the customers are more inclined towards it.

Financial Literacy Centres (FLCs) can play an important role in promoting financial literacy by creating awareness about banking services. Thus, integrating the informal and formal financial sectors can further make digital banking services more accessible to a large chunk of the population that otherwise prefers the physical branches.

Furthermore, to stay relevant in an ever-evolving customer pool, PSBs need to make the most out of the dynamic changes in the BFSI sector in the country. The success of these banks will largely depend on the alliances they form. Thus creating innovative partnerships will ensure the growth of PSBs.

It is no more about banks versus FinTech. Partnerships between banks and FinTech companies will allow banks early access to innovative technologies while the FinTechs would benefit from the vast experience and infrastructure of the PSBs. Both Kannan and Rai believe that a lot of such partnerships may be witnessed over the coming years.

The very technologies that drive revolutionary transformations also invite security risks with them. Technologies are getting sophisticated, and so are the cyber risks. Thus, for PSBs to ensure a secure infrastructure may be very crucial.

Rai and Kannan concurred that growth through innovation is where the PSBs are headed.



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