A focus on mobilising low-cost CASA deposits, stubborn protection of margins at 3%, reduction of non-performing loans, increasing yield on advances and an aggressive recovery target. This is how chief executive officer A Manimekhalai wants Union Bank of India to strategically move this financial year with operating profit the key pillar.

Deposit growth engine

The deposit growth engine is set for a rise of 8-10% in FY24 from the year-ago period. This is being planned with less aggression on taking bulk deposits and more on raising the CASA (current account savings account) ratio.

For the quarter ended September 2023, the state-run lender’s deposits grew 9.04% year-on-year and CASA increased by 4.5%. 

“We have got enough liquidity and will not be that aggressive on taking bulk deposits. Our major focus will be on increasing the CASA ratio,” said Manimekhalai.

The bank has taken several initiatives to push its CASA growth. Among them are adopting a deep segmented approach, having dedicated relationship managers for top clients, digitisation and starting an exclusive vertical on salary and current account. 

“About segmented approach, I can specifically tell you that we have started exclusive products for women, for salaried, for pensioners, for women entrepreneurs and such like that,” Manimekhalai told analysts in a post-earnings call. 

The bank has also gone for product improvements to increase its share of corporate salary accounts. It has revamped its mobile app to include more services. 

The workforce in UBI Services Ltd (UBISL), a wholly owned subsidiary of the bank, has been engaged to address a wider segment and mobilise more CASA business.

Since there is enough liquidity, the bank has taken a conscious decision not to take deposits at higher rates unless it is needed and credit growth goes up substantially.

How credit yield rising

Union Bank of India has been able to increase its yield on advances and maintain it at 8.8%. This is mainly because Rs 1.2 trillion of the bank’s domestic loans are coming up for repricing in the last two quarters of the current financial year.

“About 50% of the bank’s domestic loans is MCLR-backed (marginal cost of funds-based lending rate) and repricing is happening on a quarterly basis. About Rs 1.2 trillion of the domestic advances under MCLR will be repriced,” said Manimekhalai.

In the first half of the current fiscal, the bank had repriced about Rs 1.1 trillion of loans. While the third quarter will see a repricing of loans worth Rs 58,000 crore, the final quarter will be on about Rs 66,000 crore.

The improvement in credit-to-deposit (CD) ratio by 2% to 76% as of 30 September 2023, the phasing out of low-yield advances in a very strategic manner and the increase in portfolio of retail loans have enabled the bank to increase the yield on credit. 

“Earlier, it was almost like 55:45 ratio. But we have now increased our RAM (retail, agriculture and MSME) loan portfolio to 57% of total advances. And our credit portfolio, which gives you a lesser yield, we have brought it down to 43%. So, all these mixed strategies have given us a better improvement in our yield on advances,” said Manimekhalai.

The bank is increasingly looking at the retail segment where the yields are higher. “In the corporate sector, there is a lot of competition going on. So, we are more focused on the retail segment,” Manimekhalai said.

On the term deposit front, the bank has less of repricing to do in the last two quarters of the current fiscal. “We have taken a lot of deposits as on September 2022. The repricing has actually happened. So, as of date, we do not have much of our portfolio which will be repriced in Q3 and Q4 of FY24,” the CEO said.

NIM at 3%

Manimekhalai is confident that the bank’s net interest margin (NIM) can be protected at 3%. “Going forward, there will be a little pressure on the margins due to the liability repricing. But I don't think that our NIM will fall to a very great extent. We will be able to maintain the NIM at 3%,” she said.

Net NPA below 1%

The immediate target is to bring down the bank’s net non-performing asset (NPA) below 1%. “Going forward, you are also looking forward to creatin some additional provisions, which we have done somewhat. But further additional provisions we will do in the standard assets category also, depending upon the availability of profit. Immediately, our first target is to bring down the net NPA below 1%,” said Manimekhalai.

Unsecured personal loan book

The bank’s unsecured loan book is about Rs 11,000 crore. The NPA on personal loans is about 1.5% as of 30 September 2023 and slippages about 1%.

“Regarding personal loans, we are taking it from the salaried employees. That’s the reason there is not much substantial increase in that product. But as and when the credit card business grows, we will see some unsecured lending on personal loans,” said Manimekhalai.

Slippage target and recovery

The slippage target for the full-fiscal is Rs 12,000 crore, out of which Rs 5,400 crore has come in the first half. This is the maximum line that we have kept for the year. We will try to keep the run rate below Rs 12,000 crore,” Manimekhalai said. 

The bank has guided for recovery of Rs 16,000 crore for the fiscal, out of which it has achieved Rs 7,800 crore till September-end. 

“Though we had kept the guidance of Rs 16,000 crore last fiscal, we finally ended up with Rs 20,000 crore. We will maintain the guidance for FY24 and see that we surpass those levels,” Manimekhalai told analysts.

Bad loan write-offs 

While Union Bank of India wrote off close to Rs 18,000 crore of bad loans in the previous fiscal, in the first half of FY24 a total of Rs 8,000 crore has been written off. While in the first quarter about Rs 2,000 crore was written off, in the September 2023 quarter the amount was Rs 6,000 crore.

Union Bank of India’s total portfolio of written-off accounts is around Rs 72,000 crore. The state-run lender has already recovered close to Rs 1,500 crore during the current year. “We hope to hit around Rs 4,000 crore by the end of FY24,” said Manimekhalai.

Credit card 

Union Bank of India is looking to reach a target of one million credit cards by the end of FY24.  

The credit card base touched 7.27 lakh as of September 2023, up from 5.5 lakh a year ago.