Although the number is not that big now, but customers are shifting. As of now, the difference between external benchmark linked rates (EBLR) and marginal cost of funds based lending rates (MCLR) is quite narrow.
Even as the credit growth slows to a trickle in the first nine months of the current fiscal, Union Bank of India expects to achieve 8% credit growth in FY20. Rajkiran Rai G, managing director and CEO of Union Bank, in an interview with Ankur Mishra, says the bank is also ready to function as merged entity from April 1. The government had earlier announced merger of Union Bank of India with Corporation Bank and Andhra Bank. Edited excerpts:
What is your expectation for credit growth till March 2020?
The companies are borrowing for various purposes, as the rates have come down. So, there is a lot of activity in credit market currently. Therefore, you can expect good credit growth for our bank. Overall, we are on path of achieving 8% credit growth for the whole year, which is exactly the target we had set earlier.
How do you see lending rates? Do you believe there is further room to cut rates?
The lending rates are almost at an all- time low. Our rates have come down by 60-65 basis points (bps) since January 2019. One may say that RBI has reduced rates by 130 bps, but my cost of funds have not come down. For me to cut rates, cost of deposits have to come down. Unless I bring down deposit rates, I cannot cut rates. Whatever can be done is already done. Even without RBI cutting rates in the last policy, it was a systematic reaction from banks by cutting rates as the factors are well defined.
Are customers shifting to products linked with external benchmark?
The shift is happening. Customers are shifting to external benchmark linked rates, especially in the last month there has been a distinct shift to new rates. Although the number is not that big now, but customers are shifting. As of now, the difference between external benchmark linked rates (EBLR) and marginal cost of funds based lending rates (MCLR) is quite narrow.
How much prepared you are for merger with Corporation and Dena Bank?
On January 17, 2020, all the three managing directors (MDs) met employees of Union Bank of India, Corporation Bank and Andhra Bank in Mumbai. We also addressed customers of banks jointly. All three banks have started promotion separately. So, we are thinking of a new organisation, reworking products and finalising strategies.
So should we expect merger to be effective from April, 1, 2020?
Officially no date has been announced. However, we are more than prepared to work as an integrated bank from April 1, 2020. We are waiting for the final direction from the government.