Corporation Bank has already crossed the Rs 1.5 lakh crore business mark and plans to take it to Rs 2 lakh crore in this fiscal, says J M Garg, chairman and managing director, Corporation Bank. He shares his plans on expansion, capital raising and the bank’s new ventures in an interview with DNA.

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How do you plan to raise funds this fiscal, will it be through a rights issue or a follow-on public offer?We need to discuss this with the government on whether they are comfortable reducing their shareholding from 57% to 51%. We will be more comfortable with a rights issue because we may get a better price in the markets now. The amount of the issue depends on the market conditions, but if even we come with a 1:2 offer, it should be around Rs 3,000 crore. In the first half we won’t need the capital since our capital adequacy ratio is already above 15%. So may be in the second half of the current financial year we may go for a rights issue. We have already raised Rs 550 crore for our upper tier-2 requirements recently, before the policy announcement. In the fourth quarter, if we get the approval from the government we may go for the rights issue, otherwise we may have to raise capital through tier-I or tier-II because we have a lot of headroom. Our networth will be now almost Rs 6,000 crore.

What are your overseas expansion plans?We had planned our first branch in Hong Kong, which is still pending. The RBI is yet to clear the license. We are approaching them once again. Earlier they had certain concerns regarding global market scenario. But now since the economy is recovering globally, Indo-China trade is also improving, so they may consider our request. We already have a representative office there since more than a year now, so we want to actually upgrade that. We have a representative office in Dubai also. We have mandate from our board to open branches in London, Singapore and Bahrain. But all of this will not happen in a hurry because a lot of capital and approvals are needed. We will spell out all the plans for the next 5 years in our vision document and then approach RBI accordingly. But the immediate plan is to establish one branch in Hong Kong and not only use it for global business but also to raise foreign currency funds.

Can you throw some light on your upcoming insurance venture?Currently, we are in the advanced stage of finalising our partner (corporate distribution agency) for our non-life insurance business. We don’t to enter the life insurance space, because our second-largest shareholder (Life Insurance Corporation) is in the same area. We have appointed Trinity as our consultant, which has drawn up certain parameters. The partner company should be able to support us in terms of marketing and provide customised products for our customers. We are looking at both private and public companies for an alliance. We have shortlisted 4 out of 10 players. By the end of May we will finalise, so that we can start operations by June.

What other sources of fee-based income are you are looking at?We have a subsidiary called Corp Securities through which we are going to start a broking business. That company was earlier a primary dealership but now that dealership has come back to us (the parent company) and its capital is lying unused. The networth of Corp Securities is Rs 125 crore. We will start with institutional broking operations and later go on to provide similar services to our customers also. It will help us in a big way to retain our customers who turn to other banks for the broking services. Since LIC is our second-highest share holder, tapping its clients will give us a head start. Once we have stabilised, we may enter the mutual funds business through the same company, since it is a related area. But we will need expertise, so we may go for a partnership. Our transactions and turnover in the foreign exchange business have been very good this year.

What kind or credit growth are you aiming at this fiscal?We are targeting 25% loan growth in FY11, from a 22% growth last year. In the retail segment, we are expecting to grow to 25% from around 20%, while we expect corporate lending, which has been our strong area, to grow by 35% to 40%.  Growth in the corporate loan book will be dominated by infrastructure, fertiliser companies and the pharma sector. There is huge demand in the steel and cement sectors also. We are targeting a 30% growth in SME lending.

In the backdrop of recent developments, where do you see interest rates heading to?After the implementation of the base rate system, rates will be settling around current levels. Sub-PLR lending earlier could take interest rates to levels of 4% or 3.75% but now it may not go to that level because base rate at about 4% may not be possible. Our base rate will be around 8.5%, with 25 basis points variations both ways. I think the interest rate scenario will remain benign till there is enough liquidity in the system. It is only after September, if inflation does not come under control and the RBI has to take stringent measures, will rates move upwards. But I think that even if interest rates go up by 100 basis points in FY11, growth will not be impacted.

Since you see lending rates going up only post September, how have you planned to manage your costs that have already gone up due to paying daily interest on savings accounts?Once the base rate system is introduced, loans will get re-priced. From April 1, we have already started quoting 50-75 basis points more for loans. Loans are already getting re-priced and people are prepared to pay.