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Rajkiran Rai Interview: ‘Restructuring requests quite low … not much traction in retail, seen some in MSMEs’

"The six-month moratorium has given a lot of cushion for retail borrowers."

Rajkiran Rai.

Union Bank of India MD and CEO RAJKIRAN RAI says the loan restructuring scheme has evoked a very low response and it may attract only 2-3 per cent, or even lower, of the loan book. In an interview to GEORGE MATHEW, Rai — also the Chairman of Indian Banks’ Association (IBA) — said, “we’re not seeing much stress building up.” Edited excerpts:

What’s the status of loan restructuring plan approved by the RBI? What has been the response from corporates and retail borrowers?

On the corporate side, we are not seeing much traction. We were initially expecting that five to six per cent of our book is likely to seek restructuring. In the last quarter, when we announced the results, our expectation was around two to three per cent. It can be lower also. As of now, only 12 corporates approached us for restructuring for an amount of roughly Rs 3,600 crore. Our loan book is around Rs 6.5 lakh crore and out of this, large corporate book may be around Rs three lakh crore. Restructuring requests are quite low. In retail, we are not seeing much traction but in MSMEs, we have seen some requests. For a portfolio of Rs 1,30,000 crore, restructuring of Rs 500 crore is already done. It’s not a big number, but in MSMEs, there is some restructuring happening and our expectation is a maximum of Rs 5,000 crore.

Are you expecting a surge in NPAs in the December and March quarters following the withdrawal of moratorium?

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It’s much different than what we anticipated. We expected a huge restructuring and that’s not crystallising. Even the performance of the book is comparatively better. For the September and October collection, we did not see much stress building up. This may be because of the steps that we had taken. The 6-month moratorium has given a lot of cushion for retail borrowers. They have come back to the repayment mode very quickly. They are not getting into restructuring maybe because of the fear of credit rating. We have decent collections and there’s some stress in MSMEs. Units may go out of business for various reasons. I think the guarantee scheme, especially the government guarantee, would have helped. We don’t see any stress in agriculture except for the normal stress. On the corporate side, except for two or three sectors which are majorly impacted, we see almost close to 90 per cent efficiency levels being reached now. If the court decision happens, December NPA numbers may also include September numbers. We have sufficiently factored in the required provision. For September, possible slippages were Rs 4,200 crore but we have made enough provisions. However, recoveries are happening and these numbers will get added to the December number.

Do you think the banking sector profits will be hit in fiscal year 2020-21 due to the Covid related issues?

We are very positive about the way things are turning around. Looking at the way collections are improving and corporates are behaving, we do not see a problem. It is too early to give a final conclusion on whether the Covid effect is over and it can still play out. Based on available data, we are fairly confident that things are getting back to normal. With the kind of profit we had in the half year, we should not have much impact on the profitability.


There’re complaints that the majority of genuine MSMEs are not benefiting from the recast schemes launched for them. What’s your view?
While the MSME sector is a very large segment, many of them are not in the formal structure. There are issues but it is our endeavour to reach out to everyone. In our MSME book, we reached out to every MSME customer who is eligible. We have ensured that all eligible customers are given the relief under ECLGS and other schemes. That’s why the stress has not crossed the limit. It came at the right point of time to restart their businesses. We need to do a study and find out the exact reason why Covid did not impact to the extent that we planned earlier.

When do you expect a recovery in credit offtake? Why is deposit growth surging and credit offtake remaining sluggish?

Normally you look at the total outstanding credit in the system and draw this conclusion. Sanctions and outstanding don’t correlate. We do a lot of investment credit by way of bonds. Corporates raised bonds but these were cheaper and they paid their loan outstanding. Further, working capital utilisation of large corporates came down during the Covid time. As a result, the credit outstanding in the system has come down. But sanctions were quite decent during this period during the comparable period of last year. Some segments like MSMEs and large corporates are hiring but disbursements will take some time. We expect that by March, we will see a growth rate close to double digits.


Do you expect the economy to recover by that time?

The economy is picking up. I think a lot of high frequency data that we are looking at indicates that the economy is back to normal. Whether it is tax collection, toll collection, GST collection or e-way bill generation, the trend shows that the economy is picking up speed. We are already seeing some of the rating agencies and others giving an upward revision on the GDP and other numbers. I think all of that indicates that Q3 should be a positive quarter.

Do you think interest rates have bottomed out? Savers have been hit hard as inflation has remained high and deposit rates have fallen.

I won’t say it has bottomed out. It’s close to the bottom. Depending on how the inflation plays out, there is some opportunity for some rate cuts.

What’s the IBA stand on setting up a bad bank? IBA had submitted a blueprint on the creation of a bad bank to the government.


Somehow we didn’t get much traction on this suggestion. This is an important concept which can be implemented and it will help in big resolutions because these are large NPAs. We can develop a specialised agency which can look at resolutions and NPAs. That cleans my book also. This is a good idea and hopefully, we would like to take it up again and see that there is a consensus to push this idea. On the bad bank concept, somehow people have that feeling that banks will park all their bad assets and nothing will happen there. We need to convince all the stakeholders about the purpose behind it and the action plan and the strategy behind the ARC. Once we are able to convince them, hopefully we hope to gain traction.

Bank frauds have increased of late, according to the RBI Annual Report. Do you think banks are lax in their risk and system management?


The frauds reported this year are old ones. While these frauds happened five or six years back, they were reported only recently. During the last two years, we had gone for forensic audit and investigation into these accounts. We found fund diversions and other issues. You have to differentiate between when the fraud happened and when it was recognised. In the last four or five years, the governance and system structures have evolved. We have done a root cause analysis and built systems so that lapses will not recur. We have taken all the precautions.

First published on: 23-11-2020 at 05:08 IST
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