Union Bank likely to recover ₹30,000 mn in 4QFY20: Rajkiran Rai G. Chief Executive Officer (CEO), Union Bank of IndiaRicha Varu Rathod
Edited excerpts of an interview with Mr Rai, Chief Executive Officer (CEO), Union Bank; dated 11th February 2020:
- Public sector lender Union Bank of India is expecting to recover and upgrade loans worth ₹30,000 mn in the March quarter, the bank’s chief executive officer (CEO) Rajkiran Rai G. said, taking its total recoveries in FY20 to ₹80,000 mn.
- Mr Rai informed that total recoveries and upgradations for 9MFY20 have been ₹49,100 mn and are expecting another ₹30,000 mn in 4QFY20 both from the National Company Law Tribunal (NCLT) and non-NCLT accounts. So, the Bank can close the year at about ₹80,000 mn.
- Of the expected ₹30,000 mn, Rai expects ₹10,000 mn from large accounts where resolutions have been already sanctioned and the rest from upgradations of bad loans into standard.
- He is banking on the fact that settlements by defaulting borrowers tend to peak in the fourth quarter of every fiscal year. He is expecting one big steel account to close to resolution and that should give ~ ₹7000-8000 mn of recoveries.
- In the December quarter, the bank recovered bad loans worth ₹25,830 mn, including ₹3,280 mn from written-off accounts. Banks write off loans from their books after fully providing for them when chances of recoveries seem bleak. However, recovery efforts are continued and whatever comes back is shown as other income.
- Meanwhile, the bank said its 3QFY20 profit rose nearly four-fold to ₹5,750 mn from a year earlier, helped by better recoveries and higher interest income. The state-run bank had reported a profit of ₹1,530 mn in the year-ago period.
- Mr Rai said that the Bank was helped by some good recoveries of ~₹20,000 mn which came from Essar Steel, Ruchi Soya Industries and Prayagraj Power Generation Co. Ltd.
- According to him, in the Essar Steel loan, the bank had provided 50%, and it booked an interest income of ₹2,390 mn. On Ruchi Soya, it had 100% provisioning and the recoveries came from the written-off account.
- Rai said the bank has not factored in “harmonization provisions” in this quarter and even the quantification has not happened. This category of provisions was recently reported by Punjab National Bank which set aside ₹15,000 crores in 3QFY20. These provisions apply to loans which were so far classified differently at different banks that are set to be merged. Union Bank of India will be merged with Corporation Bank and Andhra Bank.
- Mr Rai explained that it is too premature to talk about that number (harmonization provision) and the RBI has not asked about it as well.
Consensus Estimate: (Source: market screener, investing.com website)
- The closing price of Union Bank of India was ₹ 49/- as of 11 th February 2020. It traded at 0.4x/ 0.4x/ 0.3x the consensus BVPS for FY20E/ FY21E/ FY22E of ₹ 124/132/157 respectively.
- Consensus target price of ₹ 69/- implies a Price to Book multiple of 0.4x on FY22E Book Value of ₹ 157/-.