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Improvement in asset quality on track

Aims to pare down GNPA/NNPA ratio to less than 9%/2.9% by FY23

We attended UNBK’s thematic investor day on asset quality. The MD and CEO, Executive Directors, and other top management highlighted the various initiatives undertaken by the bank to: a) improve the underwriting standards, b) increased focus on speedy and timely resolution of stressed assets, c) better monitoring of the SMA book, and, d) higher focus on recoveries, with a target to pare down the GNPA/NNPA ratio to less than 9%/2.9% by FY23. Following are the key takeaways from the meet:

* The bank has segregated and shifted the loan portfolio to dedicated verticals, which focusses on marketing and general servicing.

* UNBK has opened 250 Retail loan points, 125 MSME loan points (loans up to INR500m), mid-Corporate branches (disseminating loans in the INR500mINR2.5b range), and 13 large Corporate branches (disseminating loans of over INR2.5b) to primarily focus on specific loan segments.

* Stressed loans worth INR2m and above goes to a dedicated vertical for a recovery and follow-up.

* FY23 guidance: GNPA/NNPA to be sub-9%/3%. Slippages to moderate to less than 2%, with a credit cost of less than 1.7%.

* The bank saw recoveries of INR38b and is on track to achieve total recoveries of INR150b in FY23.

* As resolution proceedings at the NCLT are taking longer to resolve (TAT of ~440 days), the management is focusing on accelerating recoveries via SARFAESI and DRT.

* SARFAESI: UNBK is separately focused on monitoring SARFAESI and DRT processes for a speedy and smooth resolution. The bank will conduct one mega e-auction, under SARFAESI, to speed up the resolution process. It is selling more than 100 properties every month via SARFAESI.

* The bank has formed a Stressed Asset Management (SAM) department for large ticket size loans. It has a total of nine such centers handling loans of ~INR1t.

* It has 19 ARBs handling loans, with an exposure of INR10-250m, and is currently handling loans worth INR140b.

* For cases under DRT, the bank has integrated 11 agencies, via API, for speedy transmission and better monitoring.

* UNBK has more than 20k advocates, who are incentivized based on the resolution and success rate of the cases being handled. Inefficient advocates are removed from its empanelment. ? The management intends to completely digitize the stressed asset management vertical, with nil paperwork, from FY23.

* Since recoveries are faster in the initial years and becomes difficult as the account ages, the focus is on resolving the same at the earliest.

* The bank has established 118 RCoCs and 18 ZCoCs. These centers focus entirely on collections.

* Some stress is visible in the Housing loan book. The management ensures that the borrower keeps at least two EMIs in the bank account.

* Total standard restructuring book stands at INR167b, of which INR45b appears to be stressed. MSMEs may witness some stress, but the same will not impact overall asset quality.

* Of the total restructuring book, accounts worth ~INR32b, i.e. 17-18% has slipped into NPA. Within this book, SMA remains controlled at INR20b.

* There remains good demand for NPA resolution in Steel, Infrastructure, and Power segments, which should see resolutions over the next few quarters.

* One account in the Textile segment is likely to see a resolution soon, which will aid overall recoveries.

 * The recovery rate on the principal stands at 40-50% in the Power and Steel segment, while the same is higher (~70%) in Road accounts.

* The bank is implementing schemes such as one-time settlement (OTS) and renewal of facilities to tackle stress/NPAs in the Agri segment

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