Tight liquidity, elevated credit-to-deposit ratio, and higher interest rates are likely to temper the credit expansion of banks in the coming fiscal year, according to A Manimekhalai, MD and CEO, Union Bank of India.

With GDP projected to grow around 7 per cent in FY25, she expects the banking sector’s credit growth to adjust to 11-12 per cent from about 16 per cent in FY24. In parallel, deposit growth is expected at around 10 per cent from about 12 per cent.

On whether Union Bank would readjust its RAM (retail, agriculture and MSME)-to-corporate loan mix, Manimekhalai said: “We do not foresee a significant shift in this (56:44) ratio in FY25… the existing distribution between RAM and corporate advances will largely remain stable.”

The bank continues to focus on maintaining a balanced portfolio even as it evaluates market conditions and opportunities for growth across segments, she said. This will allow it to manage risks effectively while capitalising on diverse lending opportunities.

Enhancing underwriting standards

Manimekhalai said Union Bank had significantly enhanced asset quality by enhancing underwriting standards, adopting proactive risk management practices, and focusing on recovery through stressed asset management and asset recovery branches.

Gross non-performing asset (GNPA) ratio decreased from 11.62 per cent in December 2021 to 4.83 per cent in December 2023, while net NPA ratio declined from 4.09 per cent to 1.08 per cent during the same time frame.

“With provision coverage ratio at 93 per cent and a credit cost (provisions and write-offs/ average total assets) of 0.56 per cent for the quarter ended December 2023, we’ve not only met but exceeded our current financial year’s NPA guidance (of less than 6 per cent).

“Given our performance, reaching our credit cost guidance of 0.50 per cent ahead of FY25, we anticipate further enhancement in our asset quality in the upcoming financial year,” she said.

Recoveries to outpace slippages

Manimekhalai said the bank’s internal target is to ensure that recoveries significantly outpaced slippages.

In FY22, UBI recovered ₹18,350 crore, while it was ₹20,140 crore in FY23; it has already achieved ₹13,783 crore recoveries in the first nine months of FY24. Simultaneously, slippages reduced significantly, from ₹22,877 crore in FY22 to ₹12,500 crore in FY23, and ₹7,960 crore in the first nine months of FY24.

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