‘CDR peak is over. There’re signs of improvement’

IDBI Bank is planning to have a 50:50 mix of corporate and retail lending in the next five years, a major revamp of the current
corporate-dominant ratio of 68:32. RM Malla, CMD of the bank, shares his plans with Neelasri Barman and Vishwanath Nair
in this interview:

Q: What are your growth plans for FY13?
A: We’re planning to grow our advances by 15% because in 2010-11 we decided that we’ll grow at a slightly lower pace, that we won’t be very aggressive in taking bulk deposits, that we’ll do good business but in areas where good spreads are available.

The results of this move were very good as we saw a quantum jump in our profits. Keeping the same strategy last year also, we decided to grow only 15% and we’ve grown only that much.

So, we’re continuing the same strategy and hope to grow 15% this fiscal. Deposits are very expensive. If it comes by way of current accounts and savings accounts (CASA), it’s far better. So, next year, while we’ll have 15% growth in advances, as far as deposits are concerned, we’ll try to increase our CASA from 24% to 27%.

Which means, it’ll be low-cost deposits. Then, the second choice will be to raise funds by way of international borrowings. There we’re planning to raise a minimum of about Rs10,000 crore. Our deposit growth target is about 12-13%.

Q: In order to boost the CASA ratio, IDBI Bank had withdrawn all charges. But later you decided to make a few modifications and imposed limits. What were the reasons?
A: Our strategy is still that we don’t have any minimum balance and other benefits. We’ve only modified two or three areas where we found that there was a huge problem. For example, there were a large number of current account customers who would come and deposit cash worth crores of rupees and immediately send it as real-time gross settlement to some other bank.

We felt that this facility of ours is being misused. Even now, we’ve given liberty to our various executives that if they feel that such facilities need to be extended to any customer for business relationship, then it can be done. But it’s not free for all.

Similarly, there was a facility that enabled our bank customers to go to any other ATM and use it as many times as possible.  There we found that some customers were using other banks’ ATMs 300 times in a month and this we found surprising.

Q: Recently, you have reduced your lending rate by 25 basis points. Is it a token rate reduction?
A: We feel 25 basis points is a sizeable reduction. We raise funds from certain sections of society to give them to some other sections. In order to do that effectively, we also need some profit. So, we took into account the rate of interest being offered by other banks to their depositors and the liquidity based on which kind of reduction we could do to ensure that we continue to get deposits. We felt that in various buckets, there was a possibility to reduce the rate of deposit between 10-50 basis points. In order to protect our net interest margins, we decided to reduce our lending rate by 25 basis points.

Q: Considering the fact that growth is slowing, do you think corporate debt restructuring (CDR) cases will rise this fiscal?
A: Owing to stress in the industry, there was a sizeable number of cases, both number-wise and amount-wise, that came to CDR. I believe the peak is over. There are signs of improvement all over. I believe this fiscal will be far better.

Q: Are you planning any new initiatives for the retail customer this fiscal?
A: We’ve brought innovative ideas in our fixed deposit schemes. Similarly, we’re going to come up with innovative products in agriculture. We want to engage more presence with agriculture. Though we don’t have much presence and our total branch outlets are only 975, this year we may add another 150 branches. We’ve thought of certain products and services which will be found very well by agriculturists. At the same time these products and services will be delivered in such a way that not only the agriculturist gets benefit but our money in also safe and sound.

Q: What is your outlook on the corporate lending and retail lending mix?
A: We’re very close to corporates. We’ll continue to remain engaged with top corporates with whom we have existing relationships. Going forward, we would like to increase our retail portfolio, including agriculture, micro enterprises, small enterprises and mortgages.

In the next five years, our plan is to have a 50:50 mix of retail and corporate loans. Right now, it is 68:32 in which the corporates have the higher share.