New chairman says goal is to reach Rs 1 lakh cr biz
HYDERABAD: Andhra Bank is planning to raise low-cost funds as margins come under pressure owing to higher cost of funds.
The bank is also planning to increase its focus on tapping the non-resident Indians. The NRI deposits in March 2008 were at Rs 600 crore. "This year, we will do all that is required to increase the NRI deposit base to Rs 2,000 crore," the bank's executive director Anil Girotra told DNA Money.
"We have an office in Dubai already. We are shortly opening an office in Jersey City in the US and the joint venture with Indian Overseas Bank and Bank of Baroda in Malaysia will help the bank access new markets," he said.
The bank has been witnessing a drop in the net interest margins (NIM). While the NIM for March 2008 was at 2.86%, it slipped to 2.76% by the June quarter.
"I think 2.6% should be a maintainable margin. I wish I had 3.5%. But in the current scenario, cost of funds and yields on advances are not going together. So even maintaining the current NIM would be comfortable," the bank's newly appointed chairman and managing director R S Reddy said.
The bank is also working on a balancing strategy by increasing the benchmark prime lending rate and the rate on deposits. Its current cost of funds stands at 5.81%, compared with 5.76% in March 2008. "It is difficult for us to say what the margin would be by the end of the year. It's a dynamic situation and there are too many variables," Reddy said.
The bank is also hoping to increase fee-based income from the Rs 661 crore pocketed last year.
This fiscal, at the end of the first quarter, non-interest income stood at Rs 119 crore.
"Despite low treasury income, we were able to increase our fee-based income in the Q1. We have third-party funds and we are also working on aggressive plan to increase our income through the distribution of insurance products. All this would help us augment our non-interest income," Reddy said.
The priorities of the bank have now been set to upgrade itself from a small regional bank to a mid-size bank.
"Our immediate goal is to scale the Rs 1 lakh crore business mark. While our target is to do it by the year-end, we hope to achieve this by December 2008. Till now, we have been classified amongst small banks like Vijaya Bank or Dena Bank. I think we are at a threshold of moving to the next level," Reddy said.
Capital adequacy ratio currently stands at 12% and Basel II compliance is expected to bring it down to 11%.
To get into the safe zone, the bank is also working on a plan to raise Tier II capital.
"We are not in a hurry to raise the capital. Even with Basel II, I think we are in a comfortable situation in terms of CAR. Though we should do it (raise fresh capital), we are still evaluating various options," Reddy said.