United Bank of India (UBI), which has been under the RBI’s Prompt Corrective Action (PCA) framework for crossing the threshold of net non-performing assets (NPAs) and breach of capital requirements, expects to make a turnaround in the fourth quarter of FY19. In an interview with BusinessLine , Ashok Kumar Pradhan, the bank’s Managing Director & CEO, spoke about the way forward. Excerpts:

RBI recently imposed additional restrictions under PCA in view of high net NPAs, low leverage ratio and breach of capital requirements. What is the way forward from here?

We have been under PCA for some time now and as things stand, we cannot open new branches because of regulatory restrictions. But I think the bank has already hit the rock bottom, so from here on the performance has to improve. We have come up with a ‘4C formula’ — capital conservation by lending to AA and AAA rated customers; cost rationalisation by focussing on branch consolidation; rationalisation of manpower and renegotiating lease rent; control and compliance by putting in place standard operating procedures so that there is no ambiguity at the operational level; and comfort of technology by strengthening MIS (management information system). I am reasonably sure that a focus on these things will ensure we come out of PCA and make a turnaround in the fourth quarter of this fiscal.

How much capital would you need ? What are the options you will explore to raise funds?

We had initially estimated a capital requirement of ₹1,800-2,000 crore. But, in the light of recent developments in the NBFC sector as well as the crisis in the power sector, we have urged the government to infuse around ₹2,600 crore. We expect the capital infusion to happen in the third quarter.

If government funding does not come, we have board approval to raise about ₹1,500 crore through a qualified institutional placement (QIP). But given the market conditions today, it is a little difficult to raise capital through this route.

What will be the key areas of growth for your bank?

We are de-growing our corporate book and focusing on RAM (Retail, Agriculture and MSME) credit.

Our total advances stand at around ₹68,000 crore. Of this, corporate currently accounts for nearly 48 per cent, while RAM comprises around 52 per cent. Moving forward, we expect corporate exposure to come down, MSME to grow by 14-15 per cent, agriculture by 10 per cent and retail by 19-20 per cent. This should help us shore up the share of RAM to 60 per cent by the end of this fiscal. But it will all depend on how quickly we get capital support.

As on June 30, 2018, your gross and net NPAs were pretty high — 22.73 per cent and 15.17 per cent respectively. How do you see the asset quality moving forward?

We hope to recover close to ₹6,000 crore from our stressed assets this fiscal. Of this, nearly ₹4,000 crore will come through resolution of cases under IBC (Insolvency and Bankruptcy Code). We have 19 accounts amounting to ₹5,600 crore with the NCLT.

Of these, two accounts have been settled so far and we expect the remaining to be settled by the end of this fiscal. We are also looking to recover ₹1,400-1,500 crore from sales to asset reconstruction companies. The net impact of this recovery would help bring down gross NPAs by ₹10,000 crore by March 2019 and bring net NPA to below 9 per cent so that we can come out of PCA.

Have you gone slow on lending to NBFCs in the wake of the IL&FS crisis?

We have been a bit slow on lending to the NBFC sector for sometime because we could visualise some cash flow mismanagement on their balance sheet. Our total exposure to NBFCs was ₹13,000-14,000 crore but it has been brought down to ₹6,000-7,000 crore in the last 18 months. This was more a part of our overall strategy as we felt that our exposure was little high as compared to the size of balance sheet.

Where the IL&FS issue is concerned, I would blame it entirely on the rating agency. Even till as late as August they were enjoying AA and AAA rating and all of sudden it was reduced to junk.

Rating agencies have to improve their algorithms to capture cash flows of these NBFCs or any corporate they rate so that their credibility is not lost.

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