Union Bank of India (UNIONBANK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Union Bank of India Earnings Conference Call for the period ended June 2020. The bank is represented by the Managing Director and CEO, Shri Rajkiran Rai G; Executive Director, Shri Gopal Singh Gusain; Shri Dineshkumar Garg; Shri Birupaksha Mishra; Shri Manas Ranjan Biswal; and other members of the top management. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nitesh Ranjan, Chief General Manager, Strategy. Thank you, and over to you, sir.

Good evening, everyone. Thank you for joining this call. Structure of the con call include a brief opening statement by the MD and CEO and then the floor will be open for interaction. Before getting into the con call, I'll read out the usual disclaimer statement. I would like to submit that certain statements that may be discussed during the investor interaction may be forward-looking statements based on the current expectation. These statements involve a number of risks, uncertainties and other factors that cause the actual results to differ from the statement. Investors are therefore requested to check the information independently before making any investment other dispute. You are also aware that Andhra Bank and Corporation Bank were amalgamated into Union Bank of India with effect from 1st April, 2020. Accordingly, financials have been disclosed to stock exchanges, which are not strictly comparative. However, we facilitate our investor community to have like-to-like comparison. The presentation is based on aggregating the audited or reviewed numbers of 3 banks for June '19 and March '20 and do not entail any at this stage. With this, I now request our MD and CEO for his opening remarks.

Good evening, everyone. It is my pleasure and privilege to welcome you all to this con call to discuss financial results for the quarter ended June 2020. The business environment globally is shadowed with unprecedented health pandemic. Many businesses are shut and supply chains remains disruptive. However, we are also witnessing extraordinary coordination between governments and central banks to ensure orderliness in markets and economy. Our government also announced timely intervention through multi-sectoral support under Aatma Nirbhar program. These measures while responding to immediate needs of businesses hit by COVID, are also forward-looking for creating long-term enablers in agriculture, infrastructure and social sector. As situation normalizes, measures initiated under Aatma Nirbhar shall have huge positive impact on financial sector. At the same time, RBI's liquidity injection, moratorium and other measures ensured financial stability in the system. The restructuring scheme and also by it is prudent for supporting individuals and businesses impacted by COVID. For us at Union Bank of India, we have been celebrating the coming together of 3 great institutions. As you are aware, Andhra Bank and Corporation Bank were amalgamated into Union Bank of India with effect from 1st April, 2020. We now operate through 9,500-plus branches covering over 120 million customers. Our strategy is to leverage this amalgamation for cost efficiency and revenue synergy while focusing on digital journey across our functional streams. I'm sure you are also looking forward to have more color on the amalgamated entity. That is why in our presentation shared with you, numbers are accordingly represented. However, please note that combined financials have been arrived at by integrating the audited reviewed numbers of Andhra Bank and Corporation Bank with Union Bank of India and do not entice any adjustments. Let me now share the highlights of performance for the quarter ended June 2020. We spoke about harmonization last quarter. To repeat, all the 3 ensuring entities harmonized, lowering loss provisions during the quarter ended March 2020, and it amounted to INR 3,650 crores. There was additional provision of INR 324 crores on this account during the quarter ended June 2020. Similarly, harmonization of employee benefits led to provision of INR 2,118 crores for the quarter ended March. This is already reflected in the opening balance sheet as of 1st April, 2020. Further, during the quarter, due to charge -- change in depreciation methodology from written-down value method to straight-line depreciation method and change in estimated useful life of certain category of assets led to additional provisioning of INR 177 crores. During the course of June, there has also been onetime impact of about INR 400 crores on P&L due to provision for employee expenses, pending resolution to align with the Bipartitie Settlement. We have also made a provision higher-than-regulatory requirement in our account of one housing finance company as a prudent measure, it amounted to about INR 400 crores. This set of information, I believe, would help you assess our performance better. Operating profit for the quarter ended June 2020 increased by 2.9% to INR 4,034 crores compared to INR 3,918 crores in the corresponding quarter of previous year. This increase was supported by growth in net interest income by 17.11%, which stood at INR 6,403 crores. NIM is maintained at the same level when compared to a Y-o-Y basis. It is also in line with our guidance given for the year. Operating expenses remained contained, showing growth of 11.18%. Provisions aggregated to INR 3,701 crores. This included a provision on account of COVID of INR 339 crores, and net profit of the bank stood at INR 333 crores. Coming to business, deposits registered annual growth rate of 7.25%. CASA share stood at 33.30%. There is subdued growth in advances. Gross NPA remained stable, while net NPA ratio reduced further to 4.97%. Provision cover ratio improved to 79.87%. Business would take time to revise, but we are encouraged by the pace of grain in the economic activities in select sectors and geographies. It is though not at a solid trend. We are utilizing this time to introduce strategic shifts to our organization. Digital is at the core of our organization design and business approach. Soon, we will embark on next level of digital journey for our customers by offering choice of digital channels for sourcing of leads, end-to-end digital lending and leveraging analytics for cross-sell or upsell. We are looking at having a good share of business and revenue through digital banking. The times are so unprecedented that short-term visibility is marked with the health pandemic, while there is high hope in medium and long term. Therefore, any guidance for the quarter or so is fraught with greater degree of uncertainty. We will continue to connect with you from time to time and share the development. That is what I wanted to share with you in brief, and now we are open for -- to interaction and your feedback. Thank you.

[Operator Instructions] The first question is from the line of Mahrukh Adajania from Elara Capital.

Sir, I had a couple of questions. Firstly, on restructuring fees. So I know it's early days, but what do you think should be or will be the quantum of restructuring that we would see for the bank? And any guidance that you could give on slippages?

Yes. We have some estimates. But then you can't hold me for these numbers because the...

[indiscernible]

So at this point of time, the fair estimates what we are trying to do. The restructuring can be anything between 5% to 6% of the book. Okay. Since we had some estimates on the slippages, the delinquency. So now the delinquency will come down with restructuring. So our revised estimate of delinquency is around 3% to 3.5%. Restructuring book can be anything between 5% to 6%. If there was estimates, looking at the present situation after looking at -- like talking to a lot of customers in the midsize and all that. These estimates we have at this point of time. But then this will definitely change as we go along.

All right, sir. Sir, what sectors in corporate would see restructuring? Because a lot of heavy -- large to mid-sized corporates have already been restructured or NPAs or IBCs. So what kind of corporates will now be restructured? Retail is fine because it could be all across.

Actually, our assessment of large exposure, when I say large, about 1,000, so we do not see any big account coming for restructuring. There is very few, even if it comes. So below that, only, we find that there are cases which will come for restructuring. So now there will be cases like broadly, if you look at sectors, from the real estate, we will see some restructuring. Real estate, when I say it will be both on residential, we -- where our book is quite small. But then we'll have some LRDs, Lease Rental Discounting, where it is for the malls and that kind of thing, so we'll see some restructuring. And we will also see some restructuring on the textile side because a lot of order cancellations and all that has happened. You may see some in the gold, jewelry side, like bad accounts, good accounts that there are order cancelations and the delay in collections and all that. So like that -- so there is various sectors that this restructuring will come in. So because -- like we are thinking that the thermal large projects will not come under restructuring because of the government facilitation, particularly through discounts, where they are paying them in time. And we are also not seeing much on the EPC side. So -- because there also the government is providing enough liquidity. Some of the toll booths, which are under BOT are affected by the toll collection and all that, they also come under restructuring. So these are the various sectors, the framework, like where the primary discussions are taking place. So we will see some restructuring.

Sir. And in retail, you would see a fair bit on housing side?

Actually, if you -- like we are factoring certain amounts under personal loans. We call to see -- because they put it broadly in a personal loan. But in our case, about 60% of the book is housing and mortgages, that means preferably by security -- with good security loans. So we don't foresee a big portfolio going under this thing. But then when I say, the book can be 5% to 6%, we are also factoring a good number of personal loans also, but then it can be quite lower than what we estimate.

Okay. So the personal loans would be -- of that 5% to 6%, personal loan will be 3% or...

The total book, actually -- assuming that we have a book of INR 600,000 crores plus. So on that number, I'm talking. But when it comes to the personal loan, our book is around INR 128,000 crores, retail book. So there also like -- right now, we are factoring about 7%, 8% there also. But then I think it may be quite lower than that.

Okay. Sir, my last question was on the MSME fee. Basically, [indiscernible] up to the maximum amount. And now, everything has been utilized. If we opened up to individuals there are -- a lot NBFCs are also saying that they may not utilize the whole portion. So I know that a lot of borrowers may not even be eligible or their [indiscernible] so there's no point giving more loans to them. But for the better businesses, isn't it a no-brainer? Because we don't have any risk really. Even if we have, which is lower our risk-adjusted return can [indiscernible]. So why isn't it being used more than what it is now?

Actually, I think banks have really used it. Even we have sanctioned more than INR 6,000 crores. So all eligible accounts -- actually, we have tapped all the customers who are eligible and sent them the offer by way of SMS and mail. And so people who wanted it have used it. There may be a good section of people, either they don't want it because they are comfortable. They don't want to, again, leverage higher. So that kind of possibility are also there. But then in our case, INR 6,000 crores on the MSME book of roughly INR 108,000 crores is not a bad amount.

The next question is from the line of Ashok Ajmera from Ajcon Global Services.

Congratulation for such a good number, opportunity, even the increase in the operating profit in this difficult time. Having said that, I have a couple of questions. Now this quarter was basically a pressure-led quarter as far as the recoveries are concerned because of the moratorium, which are there and various other benefits which are given. Now if you go through -- opted for this moratorium, now they are looked as a second grade client or customers by the bank, like some of the banks, I have been told, for some of the clients that they will not get any top-up even in future also because they opted for moratorium. So don't you think that the scheme are basically to give benefit to the people to take care of this COVID problem to build proper cash -- get urgency amount rather than taking any kind of a benefit because ultimately, they have to repay it. So what is your view on that? I mean, are you also stating in your banks that those who went for the moratorium or those who went for the 20% special loan, emergency loan or anything they are a second grade customer?

Mr. Ajmera, I think we never thought about in this line. Actually, when you said this, we are all having a smile on face. I think like public civil banks and particularly our bank do not have that kind of -- we understand the difficulty during COVID times. Every borrower has been treated with a lot of respects. We went and offered -- you can speak to some of our customers. We also have called 2-3 times. Sir, your loan is sanctioned, you can come and avail anytime. So -- and I'll assure you that there is no negativity for these people. Because COVID times have been tough for everyone, not only business but personally also. So naturally, somebody has availed moratorium, somebody is going to avail moratorium, restructuring. There is no negativity to our -- any of these people.

Great. That's very nice to hear. Sir, what would be the amount of this moratorium given on the working capital interest and the moratorium on the term loan installment, any breakup? Any idea about it? We always -- because this is the last month and now from September, we have to start paying. So some color on that, some idea on that s2008 amount? If I understood you correctly, the term loan installments, which you have taken moratorium need not be paid now in leg.

Yes. Okay. I can -- if you are capable of paying, we'll be happy to take it. But otherwise, actually, your repayment period will be elongated. And it will achieve then restructuring. The 6-month installment will be back-ended and it will be recovered later. So it will not be as restructuring.

Then what would be the amount of that? What is the total amount of debt, quantum of debt?

Actually, like, what is the moratorium availed? See, the moratorium availed in our case is about 28% of the book.

Okay. Of the total...

And to add further color...

It's a INR 6.5 crore net book?

No. Actually, what we have done, when we calculated moratorium, we have calculated the term loans only. Because the working capital -- what has happened is basically, like there is a separate provisions being given by the RBI for reassessment and all that. And for them, actually, the interest portion, they have to pay in the month of September. Or they can convert it to FITL, which has to be paid by March '21.

March '21. Yes. Correct.

Actually, like there is no benefit of moratorium as such for working capital. But then the benefit is given by different ways where, like, they can reduce the margins whereas like where we can increase their drawing power. So a lot of cushions are being given, which we have already extended to the customer. So working capital side, I don't think restructuring will be there actually, the moratorium. It will not be the issue.

Sir, even in this fresh restructuring scheme which has come up, whether it will be -- even the working capital pressure also will be considered for the restructuring apart from the term loan elongation or the ballooning or other thing kind of restructuring. Even the working capital, some part of working capital may be converted into WCDL or period maybe elongated for repayment, something of that kind also is possible under this?

It is permitted under that, including additional loans, if required.

Additional loan also, if required?

Yes.

Yes. Now coming back to the business, sir. Now since we are competitively better off now and from September onwards, different activities are expected to start. So for the coming quarters, 2 quarters of this year, what are the target approximately of the recovery, which was about INR 751 crore in this quarter? And even the write-off amount is also comparatively less in this quarter of INR 247 crore upgradation of INR 751 crore. So in the next 2 quarters, what are the overall situation, which you might have made some assessment for?

Yes, yes. We have done our assessment. Actually, see, last quarter, the total recovery -- because upgradation also is a NPA reduction actually. So you can say that the recovery and upgradation last quarter was around INR 1,500 crores. And that has come in the most difficult times when there is a lockdown and all that. So this quarter actually, already we are having a good number. So like -- but then I will not give quarter-wise projection. So our total recovery expectation, including the NCLT recovery for this year is about INR 15,000 crores. Out of that, about INR 5,000 crores we expect from NCLT. So -- for like INR 10,000 crores from other accounts and about INR 5,000 crores from NCLT account is the estimate. But then we are very confident about our INR 10,000 crores recovery for the full year. NCLT will separately depend on so many other developments because you know there are large accounts involved in this. So there are a lot of litigations going on. So anything between INR 10,000 crores to INR 15,000 crores will be the recovery number -- recovery and upgradation number for this year.

Good, sir. Now sir, coming to this profitability, I -- now this total provisions for, I think, 3,555 crores. These are very less time to analyze this. And the provision for bad -- for the advances is INR 2,451 crores. So about INR 1,100 crores, if I'm not wrong, is the other provision. Out of that, maybe INR 150 crore of income debt might have been. So what is the remaining INR 900 crore provision?

INR 400 crores we have done for the wage revision. INR 339 crores, we have done for the COVID.

Yes. So that I missed, actually. Okay.

So we -- right now, we hold, 2 quarters put together, INR 678 crores of provision for this probable COVID moratorium impact. So out of that INR 142 crores is extra than what RBI has stipulated. We hold INR 142 crores more than what is required. So if we put this INR 400 crores wage revision and INR 339 crores, I think, maybe -- and then the tax.

No. That is okay. I mean that's good to get proper inscription on that. Now sir, if you go into segment wise income revenue, treasury profit is INR 2,804 crore. Retail book losses of 800 -- sorry, the profit is INR 819 crore and the wholesale book losses are INR 3,301 crore, which says the major provision has come from the wholesale book, and treasury profit has only taken the major portion out of the entire -- this thing. How do you -- I mean, analyze it? I mean, like, what will be -- going forward, will be the trend?

Yes. Actually, the provision on the corporate side -- the wholesale book will be always there actually because even though we have reached almost 80% provisioning level, the PCR stands at 79.8%, practically you can say 80%. Still, there is the accounts where disposing requirements will come. But then, I think maybe I may also have to look deeper and come back on this. Maybe some other time we'll catch up and we'll give you a better analysis on that. Nitesh, you have some view on this segment?

Yes. Sir, a segment reporting because the figures are very -- I mean it looks [indiscernible] the entire bank has been...

Yes. Maybe give us 2, 3 days, because I mean -- because actually, for us, the numbers are available from today morning only. So I have also not had a deeper analysis. So I will come back with you on this. Maybe next week, we'll catch up and clarify on this.

[Operator Instructions] We take the next question from the line of [ Ajit Kavi ] from [ B&K ] Securities.

The asset quality [indiscernible] the asset quality has improved this quarter.

We're really sorry to interrupt you. But we can't hear you very well. There is a lot background noise where you are.

Yes. The asset quality, I have seen that asset quality has improved Y-o-Y. Yes. But Q-o-Q, the asset quality hasn't improved. So the previous amount is quite high despite asset slippages, asset classification given standstill, okay? So I just want to get the idea that from which book you got the slippages. What are those?

Yes. I'll give you that. Actually, the -- quarter-on-quarter also, if you look at gross NPA numbers, number is same because the advances came down quarter-on-quarter. So the percentage has gone up a bit actually. Otherwise the number is stable and the gross NPA. And then we have not resorted to much write-off this quarter. So gross NPA remains there. So if you look at the breakup of the slippages, we had INR 463 crores of slippage in micro and small. And then INR 170 crores -- INR 171 crores from retail, INR 104 crores from agriculture and remaining from corporate book. About INR 1,750 crores was just slippage.

Got it. So you -- in the first question somebody asked that whatever you are thinking about a restructuring amount of the first-time loan. Personal loan, you're expecting 6% to 7% of the book will go under restructure, right?

6% to 7% of the total book, actually, can go under restructuring. That is our estimate.

And loan book.

It is not like 6% to 7%. It is 5% to 6% of the total book. When it comes to retail, it can be around 7%, yes.

If it comes to the [indiscernible] personal loan, will unsecured personal loan [indiscernible].

We do not have much of unsecured personal loan. I think I have clarified because most of our loans are mortgages bank. So our personal loans are mostly salary tie-ups.

Next question is Rahul Nair from SBI Mutual Fund.

My question was, can you do the breakup of moratorium customers? 28% of loans were under moratorium, right?

Yes. Breakup of retail like that?

Retail and corporate, yes.

Yes. So retail and MSME is around 35%, 36% each, and corporate is around 22%, 25%.

Okay. And do you have any capital raise plans for the quarter?

For the quarter, for the year, we have taken approval from the Board for INR 10,300 crores of total capital, which includes a buffer of 100 basis points over the minimum. And within that, the maximum equity rating plan is INR 6,800 crores. So right now, we are evaluating raising of additional sale on bonds on the market. We're in the process, and hopefully, we should raise some amount during the current quarter.

So even you're planning to raise the current quarter and after that, you come out with the equity rate, right?

Equity is, we have taken the enabling approval from the Board, but it depends on the developments, what is the kind of restructuring and final numbers. So if it is sufficient to meet the expected growth numbers and the provision with the capital that we have. We may not also be going for the market during the current year.

Okay. So where do we expect the capital ratios to be by the end of the year? Like any target there?

Actually, like as per the approval that we have taken from the Board, we would like to have 1% over the regulatory minimum. So that is yes because now, see, if you look at CET1, which is more critical ratio, and at this point of time, it is 7.375%. So we would like to have 8.37% like -- but then these are to September, March, it can be 8%. So what we predicted is CET1 up 9%. So that's how we estimated. So like -- but at the same time, we are also working out that can we manage without raising equity capital. So we have very enabling provision so that if required, we can go to the government or any other sources. But then like we are also seeing actually, like, it depends on how it evolves. Basically, the delinquency ratios, what we are estimating, the restructuring number what -- because the restructuring will entail about 10% provision. So all these estimates. So if it goes per our estimate, then I think maybe we will be able to manage. But in that case, it will not have cushion. So we may be just getting 8%, 8.2% kind of CET1 ratios. And once we end the year with that number, maybe we'll go equity rating next year. It is very, very fluid at this point of time. We kept enabling provision. Definitely, we will avoid capital raising, which can be avoided at this price.

The next question is from Jayant Kharote from Credit Suisse.

There's just a slight increase in your network Q-o-Q, the reported balance sheet in the first quarter of INR 1,000 crores. What will that be, sir?

I think there is credit to around INR 1,310 crores INR, and that is on account of the amalgamation. So the net of the assets of the amalgamating bank, and which has -- that difference has been, on day of the Q-o-Q, of INR 1,310 crores.

So this is the one where approval is pending.

Yes. Yes.

Okay. And sir, on the capital piece, a little bit more. How would you see -- because on one side, you're expecting around 3.5% in delinquency. And -- I mean this should play out in -- starting at the fourth quarter. So at INR 6,000 crores, it's around 100 bps. And how do you see this play out? Is this in Q3, Q4 that you would have to raise capital or this can be stretched up to, let's say first quarter, second quarter of next year?

Very difficult actually to predict at this point of time. It will depend on delinquency and the restructuring. Maybe we'll get it. AT1, anyway, we have space and would like to raise. Maybe we'll get more clarity around October -- September, October. Because September itself will get good clarity on the restructuring book. And by October, we'll be very sure of what will be a restructuring book. So then actually, based on that, the delinquency numbers also will come out. So then we'll have a better clarity. And based on that, we will work out. So anyway, we have a support from the government in case of a worse situation. But we will see, actually, like, that's why I said we -- very delicate to predict numbers at this point of time. Maybe when I come with the next quarter results by October end, I think we'll be able to give you more correct picture of the theme.

The next question is from Jai Mundhra from B&K Securities.

Sir, I have a couple of questions. First on retail restructuring, sir. Now that has been up to the individual banks. Sir, when can we expect the policy? And what are your broad -- I mean when can we expect the bank level board policy for retail restructuring?

We got the approval today from the Board, for the personal loan part. So next week, maybe we will put our guideline.

Okay. And sir, how do you look at this number, which is some INR 49,000 crores, which is overdue? Not -- what is your thought process on this? A large part of it may not qualify for restructuring because that may be over 30 days past due. So how do you look at this number, sir, INR 49,000 crores?

See, actually, we have lived with this number for last 2, 3 years. Actually, this number doesn't indicate anything about the actual default. Because people keeping 30 to 60 days, 60 to 90 days default and paying is a very regular phenomenon for us. So actually, it doesn't result in slippages. So that is one of the habit, the behavior patterns of the customer. So looking at that number, drawing a conclusion is very difficult. That's why I said that September and October will give us more clarity. And actually, I'll tell you, to give you color of the theme. They accelerate through book where we had to make 5% provision in March, another 5% in June. We saw recovery, closure and upgradation of about INR 1,500 crores for that book also. That is about INR 6,800 crore, what was there in March. And then it came down by almost INR 1,500 crores we raised in June 30, and it has come down further. So even that account, which has given a classification benefit, there also recoveries happened. So actually, these are -- accounts are still live and the recovery efforts are on. So trying to draw some conclusion from INR 49,000 crores or from the moratorium book to how much will slip is a bit difficult.

Sure, sir. But sir, a last portion of restructuring, would be out of this pool only. Would that be a reasonable opinion?

No, because actually, the eligible accounts are only considered default as of 1st March. So that is only SMA-0. SMA-1 will not be eligible for this reset. So that is one part. And some of the standard accounts also may get into restructuring.

Understood. Sure. And last 2 data keeping questions, sir, what is the moratorium number in rupees crore? Because what you have given as a percentage of term loan, it would be better if we can give in rupees crore. And what is the -- how are we calculating moratorium business, people who have not paid the last month's installment, which is July? Or this is something else?

I think the logic follows, I think, more standardized in June, actually. So I think we have taken term loan installments, who have paid less than 2 installments as the moratorium.

And what was the number, sir?

For June, 4 installments are due. So it is like that here.

Sir, what is the number in Rupees crore?

I think number we have not shared. I think because then it will need a disclosure.

But in other words, sir, what is the term loan component of the bank? 50%, 55%?

I already commented on that. So we can roughly say that about 50% can be term loans.

The next question is from Sushil Choksey from Indus Equity.

Sir, first, can you give us an outlook on the current financial year in CASA and in credit growth, CD ratio and digital spend?

Actually, we divested from giving projections because of the unpredictability. But then the...

Sir, I'm asking on basic NIM and...

Yes. NIM will be -- I think, 2.5% to 2.6% is the range. Actually, I don't think it will improve beyond that. Because there is a lot of pressure because of the MCLRs cuts and other things, EBLR. So 2.5%, 2.6% would be the range. So growth, by the end of the year, can be something around 6%.

Okay. So is it more domestic or combined international?

Yes. It is combined, actually. Combined book. And CASA, right now, it went down a bit, around 33.3%. But then it will be around 35% to 36% by the end of the year.

And where do you see cost of deposits along with that?

Cost of the deposit will go down slightly because like it's around 5, I think, now. 5.03. So it may go below 5 by the end of the year.

Sir, your treasury book has grown well in the quarter because of the deposit, which you've grown in CASA and otherwise. What's the outlook for the year?

Yes. Treasury, I don't -- today, actually, I think we had a big disruption.

One-day disruption.

Hopefully, hopefully. So I hope RBI comes with some OMO. But otherwise, the treasury book, we are doing well. I think this quarter also, we are able to do a decent churning. So anyway, I can't share the numbers. But then it will be a very decent numbers in the first 1.5 months. So we are...

What is the AFS book, sir?

Yes. AFS book, that is we have disclosed in the 5,000 range.

It is there in the presentation?

Yes. Yes.

I'll have a look at it. Sir, what is the -- I asked the question in last quarter results also, what is the outlook on digital spend and how are we shaping up? Because the connectivity of the combination between 3 banks, I think -- and your penetration in South can have a greater advantage, that's what I visualize. So how are we mapping that and how are we capitalizing on that?

Yes. Actually, there are a lot of intertwining of numbers when it comes to spend. Because one side, yes, we are buying a lot of hardware, we are also buying new software. There are a lot of issues going on and -- but then putting -- because then there are savings also because -- see, broadly, we have put a number of INR 3,600 crores as a synergy benefit for 3 years. It involves IT spend and savings from IT. It involves some rationalization of branches. It also involves some onetime benefits, which are recurring. So I think we have not given a split actually. Maybe when we sit one to one, we'll try to give you color on that because for me, also -- because there are multiple spendings happening, and then there are multiple savings happening. Because we are in the technology integration phase now. See, now the data centers at some places will be surrendering. There will be not be necessity of having 3 data centers and 3 back-up centers. So all that will consume a lot of money. But at the same time, there will be some additional spending. So putting it quarter-wise will be very difficult for me. Maybe one-to-one, we will come with more clarity.

Okay. Again, sir, knowing Union Bank investor base. I see 89% is government and 11% is public. Knowing the market conditions, you would not like to dilute below -- much below book value, adjusted book value. Why don't we look at rights issue for nongovernment holders? This is my request to consider that would reward only existing shareholders, and you will also shore up the capital. So you won't have dilution. At the same time, that would bring down the government holding, which every investor, including government would like that you waste on the market and it becomes healthy data.

I think if the government permits, we would love to do that, at least reward the customer who gives respect to us during the difficult times.

Sir, government will reward. Why won't they reward.

Yes. We will definitely examine that suggestion. Thank you for this, Sushil.

The next question is from Abhijeet Sakhare from Kotak Securities.

Sir, just to go back to your outlook on slippages of about 3.5% for the year. That seems like a pretty high number. If you calculate, it comes close to INR 20,000 crores. We are also saying that under 6%, which is up for restructuring is another INR 35,000 crores. Sir, just trying to understand what will comprise of the slippage outlay that you're talking about?

See, actually, we are aiming on the higher side, actually. Because for us also, we don't think that it will go up to that because capital estimation, we are assuming that number, that number is quite high. If I am restructuring a book of close to 6%, 7%, the delinquency should be around 2%, 2.5%, not more than that. But then like for estimation side, we are taking that. We will moderate that number as we come to September quarter. Because that's quite high because we also know -- and then, like, it is basically with the idea because how many people will actually suffer because of COVID, and who will not be able to do the restructuring and they will actually slip. So these numbers is very difficult to assess at this point of time. That's why we have kept a higher cushion because basically, this is done by capital assessment also.

Okay. Sir, secondly, on the 6% restructuring number, what you're, sort of, indicating is that retail will not be a big contributor, and so will the last ticket corporate loans. So probably MSME will be the biggest contributor here.

MSME on the medium industry. They will be beyond MSME, but then they are the medium one.

Okay. So MSME, when we look at the current level of NPAs and whatever we have restructured, it's already like 20%, kind of, stressed ratios on that book. Another 6% of the book restructuring part of that coming from MSME. Possibly, we are looking at this number going substantially upwards of current challenge. So just trying to understand the potential stress on this book. And secondly, we also have this facility from the long end in the form of the credit guarantee scheme. How are we doing on that? What sort of sanctions we have done? And given that we're still seeing slippage from this book, why are we not able to, sort of, utilize that into, kind of, benefit on the look.

If you look at MSME restructuring, this is available for the last 1, 1.5 years. So there's the same scheme, which is continuing actually. So if you look at the restructured book in MSME, despite the scheme being made available, I think the total restructured book in MSME maybe around INR 3,000 crores, INR 4,000 crores, not more than that. So when the scheme was available, and it's a very liberal scheme, we still -- we did not -- the eligible cases which are unviable is only that number. So putting that number again now. So I don't think there is a big restructuring book in MSME. But then like -- and the slippages have been quite high. You are right, actually, because it is beyond 15% NPA level in MSME. So because restructuring is not helping because the MSME is totally not viable, then there is no -- not worth the restructuring. So we'll see actually that's why between restructuring and slippage, there will be certain number adjustments, which will happen by the month of September, October. But then we'll be able to give you better color. So it will be charged between restructuring or accounting fee. So that kind of thing will happen in MSME, you will see. Because now there is a stressed asset fund also, which is coming from the government, which is a kind of equity funding which is coming for MSME, which is also announced. In addition to this 20%, what we are giving. So we foresee that the slippage of MSME should come down, and we will see more restructuring happening in MSME. That is my call, but then that will be known only in September, October. So medium size, yes, we will see that restructuring coming more from that book. Maybe 40% of the restructured book what we are projecting should come from this sector.

Okay. And sir, one clarification. What kind of aging provisions we have done on the current stock of NPA has been stated?

I think last time, I made that statement was 1.5% to 1.6% is the credit spot for aging provision for the full year.

Okay. And lastly, the depreciation on investment, INR 200 crores. What's driving that?

That is because of the shifting from HTM to -- which we do in the first quarter. Shift the securities, and there will be some activity. Then actually, they'll be always sitting on some profit also, when we shift.

The next question is from Rajeev Mundra from Mundra Investment.

Yes. So congratulations on a great quarter. And I just wanted to know that as far as rationalization of operations and other activities between the 3 banks are concerned. But don't you think the bank will be able to utilize the full benefits of the amalgamation?

Actually, the amalgamation that is complete. We are able to roll out all our physical infrastructure, like a new regional offices, zonal offices, mapping of the branches and then our centralized process centers, facilities, MSMEs agriculture, large corporate branches, mid-corporate branches. They're all rolled-out actually. So that is physical infrastructure is ready, and we are working at the amalgamated entity and all that. Now the next part is the heart of this is, is the technology. The technology integration, according to us, Corporation Bank should be onboarded by October end. And Andhra Bank by January end. So we are working towards that. So the already -- in September itself, some of the branches of Corporation for a test-run can be onboarded. We are working on that. But by October, we will complete incorporation. And by January Andhra. And then actually all the 9,500 branches will have real synergies because everybody will be on a common platform.

Right, sir. And my last question is. Sir, if you look at it from an investor perspective, I think it's been challenging, not only due to COVID. But generally, it's been in the last 5 years. So while we are not looking at any predictions as such, do you think that the worst is behind us?

I can say things are not as bad as we think. That -- the future is much better. Because when I look at my numbers also -- you yourself have the numbers in front of you because actually, if you look at our valuation and the numbers what we have, I think it doesn't correlate because we are much better than people thought, actually. Despite other income going down, look at our net interest income and OP what we have and the operating profit actually could have been higher by another INR 400 crores, INR 500 crores. But for certain adjustments which happened, which is specific to this quarter. So that's like, we have sufficient capability to absorb the numbers what I'm talking about. Like delinquency of 3.5% and the related provision, 6% -- 5% to 6% restructuring and related provision and the aging provision. So we should have sufficient operating profit to absorb these kind of things. So that is a rough estimate we have. And that is good enough. Actually, I think in the [indiscernible]. So it can be better than that. It may not be worse than that.

We'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.

Thank you. Actually, I think, very good questions. I would have allowed to give more clarity on some issues, but we ourselves are not very clear on certain numbers. But then my request to all analysts. Now as an amalgamated entity, I think the numbers are before you. So now I think it's a time to reassess Union Bank. Actually, all uncertainty around the amalgamation is complete. All harmonization related provisions, we have absorbed in March, some leftovers we absorbed in this quarter, and that is complete. So now I think as we go on, more synergy benefits will accrue. Now we had a double hit, actually. One was the COVID disruption and other is the amalgamation. But if you look at that, with both the major disruption, the performance of the bank has been quite good in the first quarter. It will improve in second quarter. And as we go along, I think we will amalgamate a very strong bank. And I think the time to reassess Union Bank has come. My request to all analysts, please look at our numbers more keenly. We are always open for further discussions if you want. On restructuring, I would like to give more color as we complete September quarter. Definitely, we'll come with more clarity. And I always love to be very open and sharing the data with you to the extent possible. But then now a lot of uncertainty. And sorry, certain numbers are not able to give very strong prediction. But then as we come for second quarter, we'll be more clear on this number. Thank you, and thank you very much for all the support. Thank you.

On behalf of Union Bank of India, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.