Govt interference in bank affairs is now zero: Deputy managing director of IDBI Bank

B K Batra, deputy managing director, IDBI Bank, retired from the bank on July 31 after spending 33 years at the bank. He joined the institution in 1983 when IDBI was a development finance institution (DFI) and played a crucial role in transforming it into a bank. In an interview, Batra tells Manju AB that IDBI had no option but to transform into a bank due to the paucity of funds. "We made mistakes, stumbled, but we dusted off the setbacks, learnt our lessons and set out again. Today we are almost there having the magic mark of 40% in priority sector lending," he says.

When you look back after spending a long innings at IDBI what is it do you think that could have lifted the financial institutional into a top-tier bank?

The only regret is that we lost full three years in getting various approvals from the parliament as IDBI was a statutory corporation under a special Act of parliament which had to be repealed. Then there were other government and RBI approvals; when all these came IDBI fell that much behind our private sector contemporaries.

So What would you list as the three main achievements of IDBI and three main misses during your long stint?

Transforming into a bank itself was the biggest achievement. Another significant one is that we have smartly leveraged the core competence of project appraisal for growing revenues while simultaneously building up a strong retail franchise with a share of 36% in total business and priority sector lending portfolio of 40%. Most importantly, all through the journey, we have managed to largely retain the core values of 'empathetic understanding of customer needs' and 'standing by him through thick and thin'. Talking about misses, let me admit that despite several inherent strengths, we have not yet been able to place the bank in its rightful positioning. More optimum utilisation of the humongous energies of our young tech-savvy and qualified workforce.

So, was it a good decision to transform IDBI from a DFI into a bank?

That time, there didn't seem to be any other viable option. The government support in terms of equity, guarantee for our bonds and tax concessions, typically available to DFIs, had either ceased or dwindled. Our cost of funds was high. Our clientele was limited to industrial corporates and our product-basket was narrow. We could not access public for Casa funds, nor could we run cash credit lines, like commercial banks.

You joined IDBI the development finance institute in 1983 as an industrial finance officer. How difficult was it to transform a DFI into a bank?

It was not easy at all. Transforming a 40-year old apex DFI, used to largely dispense large loans to large industries, into a full-fledged commercial bank was no mean task. The task was even tougher due to the three-way merger of the then IDBI Bank, our subsidiary run as a private sector entity, and United Western Bank with IDBI, the DFI. Integration challenges were huge and the situation then was semi-chaotic. We flitted from one mini-crisis to another every other day. Meeting reserve requirements, however, was not that difficult. CRR was met in one go, upfront. SLR stock was built up within the timeframe permitted by the RBI. What became a daunting task was the priority sector obligations – especially for agri and MSME sectors, for which we needed to develop necessary network as also better understanding.

In the initial days the IDBI Flexibonds helped the bank raise resources. Will you talk about these long-term deep discount bonds that were a big hit with the retail investors?

When the government's equity support to IDBI dwindled beginning early nineties, we turned to the public, and mopped up their savings through 'IDBI Flexibonds' and 'IDBI Suvidha Deposit' – the instruments which became 'household brands' in due course. We kept tapping public through these avenues until conversion into a commercial bank. Under 'Flexibond' umbrella, several variants such as Regular Income Bond, Retirement Bond, Deep Discount Bond and Infrastructure Bond were issued. Of these, Deep Discount Bond was first-of-its-kind and truly became a hit with the public – it offered a maturity amount of Rs 1 lakh for an initial subscription of merely Rs 2,700, the tenor being 25 years. We ended up mobilising a tidy sum in 1992 through this variant.

Many people did not encash the bonds since it was for 25 years and the bank exercised the call option before the 25 years were over. What is IDBI doing about the unclaimed money?

Call option was in-built into the offering, and it was considered prudent to exercise /it in view of the then prevailing interest-rate scenario. On its part, the Bank has made repeated efforts at reaching out to the investors for returning their maturity amount, with interest. Currently, only a small fraction of the amount is outstanding, and our efforts at locating the investors through various means and putting their money into their hands are still on.

Project financing was the forte of IDBI Bank, still many of the infrastructure loans went sour...

When a slew of infra projects was thrown open for financing 8-10 years back, even banks which had low or no experience in the particular sectors jumped into the fray, began offering 'less-than tight' structures and settled for inadequate promoters' equity, very little cushions in project cost, loose or diluted covenants. There was stiff completion among the banks to lead or participate in financing such projects. IDBI Bank, thus, could not always have its way whenever consortium financing took place. The share of banking system in infra financing over last 10 years has gone up from 2-3% of total advances to over 15%. And, when overall GDP growth took a hit and policy logjam took place, several of these projects got stuck and cost overruns and lower revenues made them less viable. The fact that some of these projects were not well structured has made their revival that much more difficult. The end result is that lenders have to bear the brunt of loss, and carry a disproportionate burden in putting them back on track.

You will be leaving at a time when the top management has a lot of vacancies. Any worries?

Nature abhors vacuum. The bench-strength at IDBI Bank is quite strong and it won't take much time to fill vacant positions.

What prompted you to leave the probationary officer's post at SBI and come to a DFI?

My over five-year stay at SBI was intense and thoroughly enjoyable. I picked up rich learnings in basic banking in my roles as probationary officer, as field officer and as branch manager. What enhanced the intensity of experience was that I was posted in Bihar. So when I got an opportunity to work for the country's apex DFI with richer job content and better places of posting, I took the plunge.

You were close to be selected as chairman of two big banks Union Bank of India and prior to that Bank of India, but again the CVC played the spoiler. Would you like to discuss what went wrong?

While I would not like to comment on the specifics, one can say that whatever happened or did not happen was ordained by destiny. And, one has to move beyond, without pinning it on anyone.

Do bankers like you are feared to take decisions?

Well, decision-making is at the core of management. If one has been placed in a position of authority, one also carries concommitant responsibility to take calls – one way or the other. And, I believe there is no reason to fear if one is convinced that the decision being taken is bona fide and in the overall interest of the organisation one is serving.

Better co-ordination between the investigating agencies like the CBI and the CVC with the banks would have made it easier to tackle the bad loan issue?

Tackling bad loans is the prime responsibility of lender banks, not of investigation agencies. Of course, if legal and related eco-system is conducive and supportive, recovery and security enforcement by banks becomes that much easier.

How does it feel working for a public sector organisation with a lot of government interference?

To the credit of the current set-up, the so-called interference in the day-to-day decision-making has virtually become zero. Even in earlier situations, it was always possible to clarify or explain or do only what was doable anyway. My experience has been that most people in the system are quite reasonable and let you do what is right.

What next?

I would like to take up some work which involves good usage of the experience over the decades for the benefit of the ecosystem.