Waiting For The Big Leap
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Sudhir Kumar Jain,
CMD,
Syndicate Bank
The high credit growth witnessed during the past few years is likely to abate during the current fiscal. Persistently high interest rates have taken toll of the demand for bank funds by India Inc. We foresee credit growth to be around 18 per cent in FY 2013-14.
How will the entry of new banking players change the banking landscape in India?
Under the new bank license guidelines of Reserve Bank of India, the banking industry is entering a new phase in which it will be facing increasing competition from new banking players not only in the domestic market but also in the international market. The operational structure of banking in India is expected to undergo a profound change during the next decade. Banks would have to make strenuous efforts to retain their clientele as well as to increase their market share.
The entry of new players will necessitate that banks improve their service delivery keeping in view the individual requirements of each customer segments, if they have to stay ahead in the race amidst the intense competition. The coming decades will see Banks attracting customers by providing differentiated and high quality value-added services.
What is your take on allowing a hike in FDI in the banking sector?
FDI in the private banking sector of India is allowed up to 74% (where FDI up to 49% is allowed through automatic route and FDI beyond 49% but up to 74% is allowed through the Government approval route).
FDI in public sector banking in India is allowed up to 20% (FDI and Portfolio Investment put together) through the Government approval route, subject to Banking Companies (Acquisition and Transfer of Undertakings) Acts 1970/80. This ceiling (20%) is also applicable to the State Bank of India and its associate Banks.
Any move which may result in higher efficiency and productivity is a welcoming step. Hike in FDI in banking may prove to be a positive move for the sector, as it will strengthen the Bank’s capital base in line with Basel III capital requirements, besides bringing many more avenues for income growth and profitability.
Increase in FDI will also help in bringing world class technology/management experience /practices into the banking industry.
Are Indian banks adhering to prudential risk management norms followed globally? What are the further steps we need to take to strengthen our risk management?
Yes. Banks in India are adhering to the prudential Risk Management norms followed globally by way of implementation of the Basel guidelines. Although Indian Banks have evolved the Risk Management architecture, it is yet to mature in terms of governance and risk culture has to emanate from the grass root level to have meaningful analysis. The following steps may strengthen our risk management:-
- Technology advancement is capable of handling voluminous data, which can be the best source for risk forecast and analysis. This can be achieved by data warehousing and data enrichment systems. Integration of various modules and systems in the bank can enable the banks for a meaningful data analysis and correlation.
- Risk management can be further strengthened to evolve solutions through data analytics and statistical models to predict the future outcomes which would create a pre-emptive tool for the managements. Models approach in Indian Banks is yet to pick up.
- Banking, among other factors, entirely revolves around a comprehensive IT Management and Risk Management system which supplements and complements each other. Robust IT systems will enable better analytics of system driven data by risk management functionaries. There is need to focus in these areas by the Indian banks.
- Banks should use link analysis to identify relationship between different sets of database pertaining to credit, market and operational risk categories. This will enable the bank to have an Integrated Risk Management System with correlation of various risk areas.
How do you see the interest rate scenario panning out ahead in FY14?
As far as liquidity is concerned, there is enough in the market, but due to unabated inflationary pressure which is not coming down on expected lines, Banks are operating in a high interest rate scenario. Both deposits as well as advances rates are moving upwards. This has not only squeezed the net interest margins of the banks but also slowed down the growth of retail lending as loans have become costlier. If high inflation persists, we cannot expect rapid monetary easing in the near future.
What is your outlook on the loan book growth for FY14? Which are the sectors that will spearhead this growth?
The high credit growth witnessed during the past few years is likely to abate during the current fiscal. Persistently high interest rates have taken toll of the demand for bank funds by India Inc. We foresee credit growth to be around 18 per cent in FY 2013-14. Even though the retail sector has not shown impressive growth so far, we foresee huge potential lying beneath it. All I can say is that sectors like retail, MSME, agriculture and mid corporates are showing good growth and have potential to water the credit growth in the near future.
There has been a decline in the cost-to-income ratios in the last quarter. What are the factors that led to such a decline, and how far is this sustainable
During the period ended at 30.09.2013, our employee cost has come down by 1.43 per cent and operating expenses showed a meager increase of 1.85 per cent whereas our peer banks have shown an increase of 20-30 per cent in their operating expenses. The retirement of high paid salaried personnels along with improvement in non-interest income have also had a positive impact on our cost to income ratio. Our cost to income ratio will be maintained at the same level in the remaining period of the year.
Public sector banks are struggling with higher NPAs, how do you envisage the situation going forward and what are the steps you are taking to contain that?
Managing and improving asset quality is, undoubtedly, a key challenge in an environment wherein many of the large public sector banks continued to bleed due to worsening asset quality. The muted credit growth has resulted in rise in the percentage of NPAs to advances, large restructuring and higher concessions on account of one time settlement etc.
To fight rising NPAs, the Bank has put in place a robust recovery mechanism. Special teams namely “Stressed Tiny Assets Recovery Teams (START)” at all Regional Offices have been formed to resolve accounts with outstanding book balance of Rs 10.00 lakh and below with the hope of paving way to the Branch functionaries to concentrate more on business development and reduce the drag of having to resolve small NPA accounts. Special One Time Settlement Scheme for resolution of NPAs under Doubtful Assets and Loss Assets, OTS Scheme for Tractor loans and OTS Scheme for Agricultural loans are also put in place, which is being aggressively pursued for bringing down the NPA level. Countrywide Recovery Camps are being organised at regular intervals. The Bank is also using SARFAESI very aggressively for a speedy recovery of its loans.
Please give your expectations on how your bank would fare on major financial matrices such as NIM, CASA and NPA by the end of FY14?
Our CASA deposits grew by 16 per cent and constitute 32.41 per cent of the total deposits. NIM stood at 2.87 per cent and net NPAs stood at 1.66 per cent, which stood well in comparison with peer banks. We have launched CASA campaign which we expect will give good results in the next quarter. Also we expect good recovery performance in view of the steps taken by us. We are confident of maintaining performance in the existing range. We expect our 3rd & 4th quarter performance to continue to be better.