In an interview with CNBC-TV18, Varadarajan said that while credit growth may not surge dramatically, it is expected to stay steady or slightly lower across the banking system in the coming quarters.
This is the verbatim transcript of the interview.
Q: We were looking at Goldman Sachs notes that tries to estimate how big the MFI stress pool could be and it’s running into billions of dollars. Tell us whether there is any threat of a spillover of the MFI stressed into other parts, and without MFI, is there more stress building up? What are the trends that you are seeing in the third quarter, given the rise and slippages in the second quarter?
A: As far as asset quality is concerned, the central bank has been very proactive in terms of trying to guide the banks, and doing macroprudential measures to ensure that the right actions are taken by all stakeholders. So banks, if you look at the products, which to some extent, stress was building up, those products have broadly slowed down, and you can see that over the last two, three quarters.
I would believe that on asset quality, we hit a trough in terms of what exactly slippages would be for the system as a whole, about in the last financial year. From there, it will tick up, but the ticking up is not going to be something which is going to be anything large, and it is going to be anything systemic. On the whole, it will be something which banks will be able to absorb and move on.
Q: Can you quantify that? Maybe not for a system as a whole, which is larger, but at least for Union Bank of India. When you say that overall stress will pick up, to what extent and what is the kind of GNPA movement are you factoring in by the end of the year and next year?
A: It will be broadly on the same levels which you have seen over the last two quarters.
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If you look at the last quarter, some of the slippages were driven by some large asset slippages, single accounts, in terms of large corporate and if you look at outside of that, the slippages are fairly well contained. And that’s how you look at that, in terms of segments which you are talking about, which is basically small ticket lending.
Q: Would that mean that your gross NPA levels would be contained at around 4.4% for the end of the year?
A: It will be on the same levels where we have seen.
One thing you should understand is that the broad level of slippages, as well as asset quality ratios would not be very different from what we have seen over the last couple of quarters.
Q: I am looking at your advances as well as deposits. The growth has been slower than what we are seeing in the industry. So it could be that you are losing market share. Could you tell us if this is strategic in nature, and what is the outlook on both these two fronts for this fiscal and the next?
A: If you look at what is happening for the system as a whole, clearly deposit growth has been lacklustre and it has been lacking credit growth for the last many quarters. Credit demand has been reasonably low. And it is important to make sure that you do credit where it is remunerated for the bank.
To that extent, the bank has been judicious in terms of what sort of credit it undertakes, and the resultant thing is that deposit growth has been marginally lower than what the system is, because credit growth pickup has been fairly muted for the system as a whole.
Q: This is also a function of banks trying to shore up deposits, also focusing on asset quality, which is why credit growth has come off a little bit. But how will Union Bank of India end the year? Last quarter, you were up about 10% year on year (YoY). How will you end the year on credit growth?
A: Broadly in the range of 10 to 12% range. But what you should look at, I would like to stick to what the system would do over the next couple of quarters is that if you look at the one thing which has not bothered that the market is currency, and that is what is top of mind today, and whether it is the dollar index or whether it’s what’s happening in terms of the rupee. So clearly, the point of view of liquidity and in terms of how exactly currency moves are going to be there, that’s going to be broadly driving deposit growth.
Also Read | Union Bank of India anticipates maintaining its loan growth guidance of 11-13% for FY25
Rate cuts as of now keep getting postponed. Liquidity continues to remain fairly tight. So therefore, to that extent, deposit growth is going to be not galloping away, is not going to be much higher than where we are today, with the result that credit growth will be where we see it here, or slightly marginally lower for the system as a whole.
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