It is important that public sector banks are well capitalised to channelise public savings to entrepreneurial opportunities. With investments taking a turn, it was absolutely necessary that PSBs have the capacity to fund new projects, says Rajkiran Rai G, MD and CEO, Union Bank of India. Excerpts from an exclusive interview with Aparajita Gupta

Rajkiran Rai G

MD and CEO, Union Bank of India

How bank re-capitalisation is helping in credit offtake in India?

The banking sector continues to be public sector led with public sector banks (PSBs) having three-fourth share of overall savings deposits, about two-third share of advances, within which about three-fourth share is in credit to micro and small enterprises, and small farmers.

With the asset quality issues notwithstanding, depositors have continued to trust PSBs with their hard-earned savings. They may not be making an attractive proposition from purely risk-return perspective for a commercial undertaking, but their role in generating jobs for the citizens cannot be overstated. It is important for the PSBs to be well capitalised to channelise public savings to entrepreneurial opportunities. With investments taking a turn, it was absolutely necessary that our banks have capacity to fund these new projects. Accordingly, the latest tranche of capital infusion is largely targeted at banks, which were under regulatory lending restrictions. Bank re-capitalisation thus, has helped in building a buffer against loan eventualities, adding fuel for making loans to productive economic sectors.

How will it boost the economy in the long run? Has it been able to resolve the bad debt problem?

Re-capitalisation helped banks respond to current exigencies and expedite our journey towards a cleaner and efficient banking. The RBI estimates that 70 per cent of capital infused in the PSBs in last few years has been used to strengthen their balance-sheet by enhancing provisions. It has helped create capacity to take bold decisions on recognition, resolution and recovery. The total stressed assets of banking sector have actually peaked last year and are declining. It is important to note that banks booking losses is anticipatory and not actual losses and are likely to reverse their provision since their exposures are settled.

Re-capitalisation has helped unblock the financial flows to productive economic sectors. Its long-term impact has to be seen together with the structural reforms along with bank specific interventions to make them efficient, responsible and responsive. For example, under Enhanced Access and Service Excellence(EASE) reforms, PSBs are pursuing many initiatives to strengthen their risk management, underwriting and overall operational efficiency. The PSBs’ performance is being measured on comprehensive metrics and is being ranked for fostering competitiveness. Besides, at the system level, there have been reforms like insolvency and bankruptcy code and bank amalgamation. These together will usher in a new era for India’s banking sector.

How much re-capitalisation has happened in Union Bank of India and how has it helped improve the balance sheet?

We have distinguished ourselves with its pursuit of capital light growth, initiatives to improve operational efficiency and customer convenience. In last couple of years, our risk weighted assets (RWA) has declined by 10.5 per cent. Our balance-sheet has grown by five per cent while the RWA has de-grown by 6.3 per cent. We have received Rs8,600 crore as capital from the government in the last two fiscals. The bank has partly used it to strengthen our provision cover, which has risen from 51 per cent on March, 2017 to 59 per cent by end December, 2018. The remaining money is being efficiently deployed to raise income, thus creating internal capacity for growth.

What does the new mega bank merger mean for the industry?

India is predicted to be $5 trillion economy by 2025, growing to $10 trillion by early 2030s. An economy of that size will require stronger financial institutions with right scale. Bank mergers are to be seen in that context.

For stakeholders, it is a win-win situation. Banks will gain from economies of scale, de-duplicating offerings, leveraging geographies, technological capacity and becoming more competitive in general; customers from comprehensive service proposition, product choices and cheaper rates.

aparajita@outlookindia.com