‘We want to pay higher rate to depositors, charge the lowest from borrowers’

IDBI Bank was India’s first bank to waive off banking charges for their
current account and savings account holders. This bold step was taken by
RM Malla, who took over as the bank’s chairman and managing director last July. Senior citizens earn higher interest on their fixed deposits and the bank
allows its customers premature withdrawal of fixed deposits without levying a penalty. The result: the bank now opens nearly two lakh accounts every month compared with around seventy thousand accounts earlier. Malla shares his bank’s plans with DNA in an interview. Excerpts:

What kind of image do you want to create for IDBI Bank in the eyes of retail customers?
We would like to say that this is a bank owned by the Government of India, but provides services like the best private sector bank. It is a public sector bank with the backing of the nation, but serving as a private sector bank.

The customer should get what he wants, because he is the most important person. For that, we have ushered in a paradigm shift in banking, which includes no banking charges levied on current account and savings account holders. This is at a huge cost to us, nevertheless, we would like to offer this service, because we want as many people as possible to bank with us.

Since you agree that offering this kind of service without levying charges comes at a huge cost for the bank, will you be able to sustain this kind of offering to your customers?
Once our current account, savings account and retail fixed deposit base goes up, which it is, we believe we can capture this cost within our bank. We, as a bank, would like to earn more from our borrowers rather than from our
depositors. The long-term vision of this bank is we want to pay higher rate of
interest to our depositors and charge the lowest rate from our borrowers. This can happen only if you have a huge balance sheet. Till we reach that huge balance sheet size, what we have decided is to pay our depositors as much as possible. This means, we pay high rate of interest, and today on 1,100 days, we are probably paying the highest. We don’t want to charge them for any service. We are choosing top-class borrowers, and trying to see they give a slightly more rate of interest. We would like to earn more from our asset side and give as much as possible to our depositors.

In how many years do you think you will attain that place where you will be able to offer the highest rate to depositors and charge the lowest rate from your borrowers?
As far as giving the highest rate to depositors is concerned, we believe we have reached that stage already. As for the borrowers, this will be a gradual process. Today, we are dealing with top corporates, who are very interest-sensitive. We have decided to consolidate and focus more on profit. Still we are having a net interest margin of 2.28%, which proves that we have reached a stage where profit has to be one of the important factors rather than only growth in advances. We have a unique advantage of having the best technology as we were a late starter in banking. The average age of employees is the lowest. In the next 3-5 years, we will reach a stage when we will be charging the lowest rate of interest from our borrowers.

You are taking very aggressive steps by waiving off banking charges so that more people open account with your bank. But we have also learnt that you don’t have the manpower, due to which many applications to open accounts in your bank are pending.
I partially agree. When we started our customer delight scheme, suddenly the number of account openings increased. We work on a system wherein our branches are acting as front offices and the other work is done by our back offices. And our back offices are like factories that work on two-shift basis. Forms are collected by the front office that is the branch, preliminary ‘know your customer’ (KYC) is done by them, but the main KYC is done by the back office. So, when the number of accounts suddenly became two-and-a-half times of what we used to open earlier, it took us some time to gear up. But what we did is we made the back office work in three shifts. However, there are issues still because these forms have to go to back offices, which are less in number than the branches. For example, fifty branches are taken care off by one back office. Earlier, these forms were moving by way of couriers etc. Now we have converted them into imaging. But I still take your point. We are now quickly ensuring that if someone has decided to open an account, he should get it soon and there are no delays.

What is your outlook on lending and deposit rates after the 25 basis points hike in repo and reverse repo rate by the Reserve Bank of India recently?
I feel such signals must get passed on where it is due and only then can we curb inflation. But as far as deposit rates are concerned, I don’t think further hikes will happen as of now. In a couple of days our Asset-Liability Committee (ALCO) will meet and look at the prospects of passing on this rate hike. About our base rate is concerned, we have revised that on January 1 itself. Our base rate is now 9%. As far as our benchmark prime lending rate (BPLR) is concerned, it is 13.75%. In our ALCO meet we will review our lending rate.

You have a presence in mutual funds and insurance business. How many years do you think you will take to break even?
As far as our insurance company is concerned we believe that in 5-6 years we will break even. In mutual funds, the way it is happening, we will break-even much faster and it all depends on what is happening in that industry due to the number of changes that took place in the last 5-6 months. As far as mobilisation is concerned, in such a short-period they have already reach a corpus of close to Rs3,000 crore. I think in less than three years it shall break-even.