Union Bank of India has scaled down its projection for advances and deposit growth due to the uncertain economic scenario.
The bank has decided to go slow on credit expansion as the environment per se is not conducive for growth. Further, to protect the margins, the bank will also go slow on deposit growth, said Mr M. V. Nair, Chairman and Managing Director.
In the current financial year, the bank has revised its guidance for credit growth to 19 per cent from 22 per cent and deposit growth to 17 per cent from 19 per cent.
“If you grow the loan book aggressively now, it could be risky,” Mr Nair said while announcing the bank's results for the quarter ended June 30, 2011.
Credit quality could be affected due to uncertainties on account of rising interest rates, high real estate prices, and issues such as delayed approvals from authorities and linkages for infrastructure projects, he said.
During the June quarter there was a fall in credit and deposit over the March quarter. The incremental credit growth was -4.7 per cent and deposit growth was -1.62 per cent.
To protect its margins the bank did not renew almost Rs 9,000 crore of short-term loans which were priced at Base Rate. It also pared deposit growth. For the current financial year, the bank is sticking to its net interest margin projection of 3.2 per cent, Mr Nair said.
“New investments are subdued to the extent that new projects are not being announced. However, going ahead, we expect good growth from agriculture, because the monsoon is good. Since we now have a better delivery system in place, we expect a reasonable demand from the retail segment,” he said.
The bank's net profit for the quarter ended June 30, 2011, was lower by about 23 per cent due to higher provisions. Total provisions increased to Rs 702 crore (Rs 442 crore). Of this, provisions for NPAs were to the tune of Rs 365 crore (Rs 100 crore).
NPA tracking
“As per RBI's latest NPA guidelines there is a 5 per cent increase in provisioning in substandard and standard assets. So the bank had to make higher provisions in the first quarter. It is a one-time provisioning,” Mr Nair said.
The one-time provision on account of revised RBI norms is Rs 214 crore, of which, Rs 185 crore is for NPAs and Rs 29 crore, for restructured assets.
The bank has moved into system driven recognition of NPAs and all NPAs up to Rs 5 lakh were captured by March 2011. By June, NPAs below Rs 5 lakh too were captured by the system, resulting in the higher cases of NPAs.
The additional slippages in the first quarter were to the tune of Rs 766 crore. Of this, Rs 550 crore was in sectors such as agriculture, retail and small and medium enterprises, Mr Nair said.
“We expect provisioning to be higher in the second quarter as well, after which it will start coming down. Therefore, in the next quarter also provisioning could impact profits,” he said.
Shares of Union Bank of India closed at Rs 309.2, up 5.13 per cent, on the BSE, on Friday.