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Issue Highlights

Banks Restrict Exposures

Arun Tiwari, CMD, Union Bank of India, M Narendra, CMD, Indian Overseas Bank, and Dr N Kamakodi, MD & CEO, City Union Bank, talk about restricting large exposures in specific sectors:

Sectoral deployment of credit shows slack industrial off-take. There has been some moderation in credit disbursement (YoY) since November 2013. Based on gross nonfood credit data of select scheduled commercial banks, a slowdown in credit off-take across industry was observed during December 2013. The overall growth in credit to industry decelerated to 14.1% (from 15.2% last year) led by sectors, including petroleum, mining, gems and jewellery, according to the RBI’s report titled ‘Monetary and Liquidity Conditions’ released on 28 January 2014.

Non-food credit growth (YoY) decelerated from a financial year peak of 18.1% on September 6, 2013 to 15% on January 10, 2014. In view of the higher cost of non-bank funds, corporates had earlier resorted to cheaper bank credit, thereby causing an uptick in the credit growth in Q2 of 2013-14. However, with the normalization of the policy rate corridor, credit growth moderated in line with the RBI’s indicative trajectory of 15%. The industry credit growth had accelerated to 16.6% on a YoY basis to `5,614,926 cr at the end of October 18, 2013.

Five Sectors

Five sectors – infrastructure, iron & steel, textiles, aviation and mining – together contribute 24% of total advances of SCBs, and account for around 53% of their total stressed advances, according to RBI’s ‘Financial Stability Report (FSR) – December 2013’. Industries recorded the highest share in restructured standard advances and with relatively high GNPAs contributed the highest share of stressed advances in the banks’ loans portfolio.


The large corporate loans given by the Union Bank of India (UBI) aggregated `71,751 crore as of end Q3 2013-14. Arun Tiwari, CMD, UBI, says: “There was a YoY growth of 10% to 21% in sectors like infrastructure, NBFC, real estate, manufacturing, oil and gas, etc.”

The outstanding of City Union Bank (CUB) under large and corporate loans is around `4900 cr as at September 2013 with a YoY growth of 7%. Starting from the previous year, the credit off-take was sluggish in the banking industry and the bank has continued its policy of lending to retail segments predominantly. Dr N.Kamakodi, MD & CEO, CUB, says: “The bank also took a conscious decision of restricting large exposures in specific sectors like steel, textiles, educational institutions, thereby the credit expansion in these segments was kept low.”

In order to have a diversified portfolio, sectoral flow of credit is in place by Indian Overseas Bank (IOB) in line with extant guidelines. Accordingly, IOB has set variable exposure norms to different types of sector / industry, viz. infrastructure 20%; power 15%; basic metal 15%, commercial real estate 10%, and so on. M. Narendra, CMD, IOB, says: “Thus, it is being ensured that our exposure does not exceed the norm set for a particular sector/activity and thus concentration on a particular sector / activity does not exist.”

Key Differentiators

As a part of strategic initiative, large corporate vertical (LCV) has been set up in UBI’s central office, focusing on corporate banking business. The wholesale banking business is effected through 9 WBB branches i.e 9 IFB branches spread across major cities of India. The said branches report directly to LCV at corporate office. Tiwari maintains that the differentiations include faster turn-around-time for proposal and dedicated industry desk processing. At corporate level there is a syndication desk for catering to emerging needs of large corporate.

CUB has a well defined loan policy and the key parameters stipulated are reasonably compliable, compared to the other players in the industry. The bank is very particular in keeping the turnaround time for processing credit proposals at a very minimal level, considering the competition prevailing in the large and corporate loan market. Kamakodi explains: “The leverage and liquidity ratios that are benchmarked will be the motivating factors for the prospective clients to our fold. Further, the bank adopts a transparent practice, wherein the customers’ specific requirements are discussed across the table and a better clarity is arrived at for mutual benefit.”

For effective and timely flow of credit, IOB has a 3-tier set up, viz, central office (Chennai), national banking general manager’s office (7 centers) and regional offices (59). Narendra says: “Each layer of authority is vested with discretionary powers.”

It is seen that turn-around-time is a crucial aspect and each bank has chosen to deal with it according to their organizational set up and requirements, creating a delivery model of their own.



CUB has regional development managers to reach the prospective clients and further, the bank has specialized credit processing centers at different parts of the country.

Kamakodi says: “The expertise and quickness of these two operational units will facilitate the quick turn-around time of credit sanctions. The bank also adopts cluster approach, wherein the credit sanctioning authorities at corporate level visit the customer’s unit / business place and in principle sanctions are accorded at the very minimal time.”

There is a dedicated monitoring desk at corporate level in UBI headed by senior executive monitoring stressed assets.

Tiwari reveals: “The department has been monitoring certain large corporate accounts for stress on their financials on an ongoing basis.”

With a view to improve over all perational efficiency and improve the quality of credit, the reorganization structure came into being in IOB by setting up specialized large corporate / mid corporate branches in major cities, besides designating certain branches with large volume credit as large corporate branches.

Narendra says: “Accordingly, the specialized large corporate branches have been opened in major cities. Besides, for timely delivery of retail and MSME loans, MSME processing centers are operating across the country.”

Risk Management

The NPA level of CUB is slightly higher at 2.5%. Kamakodi says: “It is mainly due to addition of a single account in the steel sector and the bank is confident of reducing the same to less than 1% level. The bank does not perceive any other risk factors in the large and corporate loan segment and existing recovery mechanisms will be continued in the coming years.”

UBI’s NPA level at the end of Q2 i.e. Sept’2013 in corporate sector was about 3% of total large corporate advances. Corporates are tracked based on level of default which is categorized on the Early Alert System-I (EAS-I), EAS-II & Special Mention Accounts (SMA).

Tiwari reveals: “Despite efforts and due to various extraneous factors slippages in sectors like information technology, education, iron and steel, power, real estate occurred. Due to persisting bleak economic outlook certain large corporate are under stress and are in the process of being restructured /referred to CDR for restructuring.”


Tiwari estimates: “Considering present economic scenario, a growth of 8-9% is expected by UBI in Q4’13-14 with selective case to case approach towards the stressed sectors, especially in the areas of steel, infrapower, road, real estate, EPC contractors, chemicals, dyes, intermediates, software and auto ancillaries. Stringent appraisal and due diligence is ensured while taking fresh exposure in these sectors.”CUB has proposed to reach a level of `5500 cr during the current fiscal and plans to establish regional offices in the coming years for quick credit dispensation. Kamakodi optimistically says: “The connect between the prospective clients and the bank will be further made easy.”

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