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ShareMumbai: Public sector IDBI Bank is expecting a government decision on capital infusion for the bank before the end of this fiscal.
The government's holding in the bank is very close to the minimum 51% at 52.67%, giving the bank almost no headroom to raise more Tier I capital.
RK Bansal, executive director and chief financial officer at IDBI Bank said the government is already in talks with the World Bank for funds specifically for the banking sector, and those funds will then be given to public sector banks that have capital adequacy below 12%.
"The government will get funds from the World Bank, maybe through a loan, and then they will provide equity for banks, I presume before the end of the financial year. We have asked them for Rs 7,000-8,000 crore in the next three years or so. We need that much for a 12% capital adequacy for next three years... it could come in tranches," he said.
Tier-I capital consists of equity and unimpaired reserves. It has the features of equity capital, which means the money borrowed does not have to be returned unlike funds raised through debt.
As of March end, the capital adequacy of nine government-owned banks was below 12%.
Last year, IDBI had also proposed to convert Tier I bonds worth Rs 2,130 crore issued to the government in 2002 into equity. Conversion of the bonds will give the bank capital and also increase government stake which would give IDBI more headroom to raise further Tier I capital.
Bansal said the Rs 8,000 crore that the bank needs includes a possible Rs 2,130 crore from the conversion of the bonds into equity this year.
The bank is planning to raise Rs 500 crore of Tier II capital in the next three months where they have scope to raise more than Rs 1,000 crore.
IDBI plans to apply for permission to open 300 more branches in 2010 after opening 200 branches by the end of September. "We took over United Western Bank, which had 230 branches, but most of those branches were concentrated in one particular region of Maharashtra. So that didn't give us the reach we were expecting. But we are opening more branches, we expect to have 1,000 branches by end of 2010," he said.
Bansal said the difficulty in opening branches is human resources. "Unlike some of the older banks where they have people they can shift from one branch to others, we have to recruit people train them."
The bank had recruited 3,000 people in 2008-09. "This year, we propose to recruit 3,000 or above given this 200-300 branches, we need so many people," Bansal said.
IDBI is also planning to introduce a variable pay system starting from July. "We will be the first public sector bank to have a variable pay system. We are going to implement that in July most probably."
However, Bansal said IDBI is not looking at generating savings from this variable pay. "In fact, our wage bill will go up because it is an increase for everyone. A 30% variable will not mean only super achievers will get it, average performers will also get... super achiever will get much more than 30%... in fact the salary can be even 130%. Let's say today he is getting Rs 100, anyway he will get 125, 30% will be variable so already some increase is going to happen and even average performers will get that 30%. Our salary bill will go up by 25%."
The bank has proposed to increase employee salaries and introduce a 30% salary component linked to performance. Bansal said the increase in salary won't burden the bank's finances. "In any case, our salary revision is due after five years from November 1, 2007, so we have provided in our accounts for some arrears and needs," he said.
Bansal said that in the current situation, only a public sector bank will be a good fit for an acquisition. "After so many years of mergers and bank failures, there are hardly any old private sector banks in the country... you can't think about taking over the new private banks. Finally, what is left is public sector space and it requires government approval. If IDBI wants to take a public sector bank then it has to come from government because both sides they are there."
Bansal expects the government to push for consolidation in public sector banking space. "Already, SBI has announced one more merger so they will try to push it is in the interest of the economy and banking sector. Also, if the government wants to encourage consolidate, IDBI is a good fit for other public banks because it does not require rationalisation of staff and branches. We have only 10,000 employees and no problem of old employees. It could solve our problem of recruitment training and branches," he said.
