The Hindu Business Line : Union Bank chief upbeat on 35 pc growth

Business strategy
The bank is working on a business process reengineering exercise to optimise CBS gains.
Greater focus on profitable segments, exclusive cadre for corporate clients.
Branch managers on training programme to reach out better in rural areas
Cluster-based approach to develop SME accounts

MR M.V. NAIR, CMD, UNION BANK OF INDIA

Chennai , Sept. 17

The first thing that strikes you about Mr M.V. Nair is his youthful energy. And looks that can deceive you into thinking he is in his mid-forties although he is a decade older.

Mr M.V. Nair took over as Chairman and Managing Director of Union Bank of India on April 1, 2006. He says that a tenure of between 3 to 5 years is needed to contribute to a large bank like Union bank and considers himself fortunate to have that opportunity.

Starting his career with Corporation Bank in 1973, he moved to Dena Bank as Executive Director in August 2004. He took over as Chairman and Managing Director of Dena Bank in May 2005 before shifting to Union Bank a year later.

Excerpts from an interview conducted at Chennai recently, where he unveils his vision for the bank and details the changes underway.

What are your priorities and what do you want to achieve over the next four years?

In the five months I have been with Union Bank, I have got a feel of the bank and the people. I must say I have been lucky with my predecessors each of whom has left a positive imprint on the organisationWhen 14 banks were nationalised in 1969, UBI was 11th position. In 1980, when 6 more were nationalised, UBI was at the 9th Post liberalisation i.e. by 1992, it had climbed to 7th and in 2006 it is in the 5th position among public sector banks. The growth has been steady without any pronounced regional bias. It now has 2,090 branches spread out across the country . Of this, 485 branches are in the south.

The bank has a very good set of staff and executives with a history of nurturing talent. Just look at the CMDs and EDs who were career bankers of Union Bank. Currently, 4 CMDs and 4EDs of the 38 such officials in nationalised banks are "Unionites."

Looking to the future we will expand volumes and the growth will be qualitative. We have returned a profit in every year of our existence.

What are the weaknesses?

The weaknesses are what could be termed legacy issues. The age profile of the employees is in the range of 47-48 years. Viewed from a certain perspective this could have a negative connotation as, for example, when it is compared to the age profile of customers of the banking industry. It has been estimated that 55 per cent of the customer population today come from the age group below 25 years. Today relationship building is very important and hence staff with a higher age profile might experience difficulties in relating to the younger segment.

A mature age profile is not wholly negative. Experience is a great asset and the organisation does not face problems of attrition through resignations. Another challenge is that this generation of staff that entered the bank in the late `70s and early `80s have for the greater part of their careers been accustomed to dealing with transactions in a physical mode. Working in a computerised environment calls for different skill sets. So the challenge is to nurture and use this experience while preparing the staff through re-skilling and reorientation.

We have moved 750 staff members into marketing. Last month another 750 staff in our CBS branches have been assigned the role of customer care officials. They will work exclusively on relationship building and marketing through the branch, and not attend to any transactions. We aim to have approximately 2,000 staff members in marketing by year-end.

Do you have surplus staff? How is your business strategy going to change?

We do not have surplus staff. The bank is working on a business process reengineering exercise so as to derive the full benefits of the core banking system. For example, clearing operations, retail loans and account opening are all being centralised and moved out of the branches. The staff now attending to this work at the branches can be redeployed into sales. This is one part of the strategy.

The second part of our strategy is greater focus on our profitable segments. We have a good corporate loan book but if we only meet their funding requirements, we will be restricting our relationship, losing out on opportunities to serve them better and in the process restricting our own profitability. We are creating a cadre to deal with corporate clients. We have identified 120 competent officers. They are into a 3- phase training programme, which will include on-the-job training at corporate office also.

They will be positioned in 50 select branches where not only their technical skills such as job knowledge but their skills in relationships building will be enhanced. With a better understanding of a corporate's needs, decision-making will become faster.

Yet another major focus area will be the small and medium enterprises (SME) segment. Once we move the major corporate accounts to 50 branches, we will have a similar system for the SME segment. We are identifying clusters where SMEs operate. We have arrangements to have our SME advances rated by reputed rating agencies. This will help the borrower because he will be able to command slightly finer rates and from the bank's point of view, asset quality will improve. Lending to SMEs will also be concentrated in approximately 50 branches. Thus with about 100 branches taking care of corporate customers and the SME segment and operations such as clearing, account opening and processing of retail loans being centralised, the remaining branches will focus totally on marketing of deposit products and third party products. With this change, we can scale up growth from the present 20-25 per cent to 30-35 per cent. This growth will be both robust and healthy. This is the major change we are bringing in.

What are your plans with regard to agri-lending?

Agriculture is another major focus area of the bank. We have a large presence in the rural areas with approximately 800 branches. The demand of the rural population for a wide variety of products and services is on the increase. Many corporates are becoming aware of the opportunities in these markets and are seeking to establish a presence in the rural areas.

Our approach to lending in the rural area is based on the understanding that the financial needs of the family as a whole would have to be met. All adult members of the family should be enabled to earn a livelihood - other income is needed to support the farm income.

Our 800 branch managers are going through a training programme at the College of Agriculture - Pune and BIRD Lucknow, mainly to focus on how the outreach in rural areas can be improved. Right now if a branch is servicing 20 villages, the manager's focus is mainly on the 2 or 3 villages nearest to the branch. The farthest village doesn't get attention. The challenge is to reach out. We need to go through local people. We have come up with a model approved by RBI involving what are known as business facilitators. Through the farmers club or locally known people, we'll outsource this. The technology is being developed by IDBRT. Once this is in place, the village folk will be able to operate an account closest to his house - kiosk - or post office. It will take 5 to 6 months. We are working together on this.

Once we implement this program, business volumes will go up - because we are able to reach out. And secondly, the cost of operation will come down. Besides, our experience in lending in the rural areas in the last few years is quite positive. The "demand to collection ratio" (the amount paid by the borrower on the due date) is as high as 85 per cent. Non-performing assets have come down significantly because of the success of SHG & activation of farmer clubs.

Another initiative we have put in place is Village Knowledge Centres (VKC). These are centres located near a rural branch. The VKC is provided with a computer complete with Internet facility. These centres disseminate information about agro-climatic conditions, current market prices of various agricultural commodities, details about agri-exports, employment opportunities, weather conditions and other information relevant to the local area. A bank official, whose main function is to supplement the information with relationship building involving key personnel from the local areas, oversees the VKC. These VKCs have proved to be effective because the local population is empowered through information so that productivity increases.

We have invested in rural branches for the last 30 - 40 years. This is the time to get the benefit from that investment.

Your bank has been trying to open branches abroad - Dubai, Shanghai etc. What is driving this move?

Till recently, this was not a major issue - partly because we had correspondent banks for most requirements and also because non-resident Indians would have an account here and our focus was to ensure speedy and effective remittances.

But in the last two to three years, a large number of our clients are establishing a presence abroad - even acquiring businesses there. These are markets which are growing fast, where Indian companies are bidding to win contracts. As and when they move to these places, they find they have to establish their credentials with local banks before they can do business. The presence of an Indian bank will facilitate their business. In such situations, if we establish a presence, it will be a great support for these clients. Besides, it also helps to have branches abroad, when we raise capital abroad. This is the right time to go out - first with the ethnic community but later with a view to capturing local business. We are going to engage a consultant to lay a roadmap for us.

How are the preparations for Basel-II going on?

The bank has carried out a comprehensive self-assessment exercise spanning all risk areas and developed a road map to move towards implementation of Basel II as per RBI's directions. Our bank will be in a position to implement Basel II norms as directed by RBI by March 31 2007.

Our capital adequacy ratio is 11.25 per cent. We have elbowroom to raise hybrid capital of up to Rs 600 crore and upper tier-II capital of Rs 1,800 crore.

How do you see the interest rate situation?

We have increased our prime-lending rate PLR by 25 basis points to 11.50 per cent. We revisit our BPLR on a quarterly basis, taking into account our funding cost, capital cost, default possibilities and our profit margin. Overall, it appears that interest rates may not gallop from here. It looks stable for the next six months.

How are you managing to raise resources?

We have increased long term deposit rates to about 7.25 per cent. We are packaging different products. We came up with a scheme in July, "Union Double" when we offered 8 per cent for a 8 year and 9 month deposit. It received a very good response - we mobilised Rs 1,500 crore. These were retail deposits - the maximum amount per deposit was Rs 1 crore.

Have you seen deposits go up every time you have raised interest rates?

When you raise deposit rates, everybody raises them. So you are back to square one. It is your ability to communicate, get the message through and above all build relationships that will make all the difference. Our mobilisation of savings has to increase if bank lending has to keep pace with 8 per cent GDP growth. That is a challenge.

How about selling a part of your investment portfolio to raise resources?

In our case, we have been growing fast. Our CD ratio has come to 74 per cent. The excess SLR is just Rs 1,000 crore which has to be related to a portfolio of Rs 75,000 crore of deposits. This is probably the bare minimum that we need to maintain given the business levels of the Bank.

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