The RBI on Tuesday said that they are getting ready to give banks more flexibility in restructuring stressed loans which will facilitate recovery of stalled projects.
Arun Tiwari, chairman and managing director of Union Bank believes it augurs well for banks.
Below is the verbatim transcript of Arun Tiwari's interview with Menaka Doshi and Senthil Chengalvarayan on CNBC-TV18.
Menaka: The Reserve Bank of India (RBI) indicating that it wants to allow or permit banks to have a more than 10 percent equity exposure to a company or to a project of that company thereby allowing it to convert some of its stressed debt into equity. Do you see this as a big positive?
A: We will have to look this on a larger canvas. Typically when there is stress, bankers suffer. Now, when there is upside, if I am an equity holder let me have those fruits also. So, it augurs very well and we will be spread on both sides of it. Ultimately it is banks' money, we give by debt or we participate via equity route it augurs well. It is a welcome step.
Menaka: There have been some instances where we have for instance seen that play out in Kingfisher Airlines where several lenders converted their debt into equity and I don't think it paid off for them. Now that is a unique stressed asset situation but do you really think that banks should be playing for the upside in what is a pure risk instrument as oppose to being higher up in the credit hierarchy as a lender and not as a shareholder?
A: That is one of the cases of thousands of thousands of cases. Now if one case goes wrong or doesn't go the way it was expected to be we should not lose the broader side of the whole exercise and when we will be doing it we will be prudent enough we have to put in money via way of equity. Ultimately, it is my exposure on the company.
Menaka: You are saying there are instances even now where you would have preferred to convert some of your debt into equity that exceeds the 10 percent threshold but you are not able to because of that threshold. So, if the threshold is heightened or hiked that would be a welcome move?
A: That is right.
Menaka: What would you expect because the RBI has said that it is in conversation with Sebi to figure out pricing norms for something like this? What would you hope that Sebi allows in terms of pricing norms for such a flexibility to be viable in that sense?
A: We will also have a look on that. Whatever Sebi comes out with their guidelines in due course of time ultimately if it makes sense for us we will put in that money because at what price we put in the money, if we see value for money on a long term horizon certainly we will be in for it. If it doesn't make sense may be we will be out of it. So, it will be case to case basis.
Senthil: Coming to today's policy he is clearly given us an indication that his glide path to inflation is going to come down quicker than he had earlier said so 6 percent by March 2015. So, when do you see him cutting rates first?
A: Our stance has been very consistent since beginning of this financial year we always have maintained views on it that not before Q4. From regulators point of view they would also like to see that if growth happens on account of downward movement of the inflation it should be consistent there is no flip-flop.
Supposedly if looking to the market conditions which are saying whether we look at the bonds or we look at the commercial paper (CP) if they are moving downwards and then there is media saying that interest should be moved downwards but the fact remains there should be a consistency for a longer period otherwise this flip-flop if regulator reduces by 25 basis points it doesn't make any sense.
Minimum cut should be of 50 basis points number one and it should be on that trajectory for times to come. Otherwise that flip-flop no borrower or nobody would like to have that today it decreased and tomorrow it is increased.
Senthil: Clearly the bond markets are looking at today's announcements as a trajectory which is clearly going down and we are seeing that resultant play out on bond yields. What kind of benefits will a bank like yours get from drop in bond yields? Can you quantify for us what is it likely to be?
A: Only one thing, this quarter we can definitely say we have on our bond market side substantial amount of money because of this downward trend.
Union Bank stock price
On December 02, 2014, Union Bank of India closed at Rs 219.30, up Rs 1.65, or 0.76 percent. The 52-week high of the share was Rs 259.60 and the 52-week low was Rs 100.60.
The company's trailing 12-month (TTM) EPS was at Rs 30.88 per share as per the quarter ended September 2014. The stock's price-to-earnings (P/E) ratio was 7.1. The latest book value of the company is Rs 288.93 per share. At current value, the price-to-book value of the company is 0.76.
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