The Hindu Business Line : `Banking is much more than balance sheets'

INDIAN Bank under the Chairmanship of Ms Ranjana Kumar has during the last 19 months made some progress from the lows to which it had dipped in the late 1990s.

In this interview to Business Line, the CMD looks back at the stormy days that are thankfully behind her. Conscious that she and her colleagues have to work very hard to come out of red into black, and remove the tag of a `weak bank', she says, "Whatever little progress we've made needs to be seen in the backdrop of the economy not doing so well, interest rates coming down and our bank having a large exposure in core industries which are not doing well."

Excerpts from the interview:

You took over the chairmanship of Indian bank at stormy times in 2000. What were your immediate priorities?

There were several issues, but the main was the sagging morale of the work force. When you call an organisation weak or sick — there was also the adverse CII report — and you know there are a lot of people who have seen it at its heyday, the challenge is to regenerate the enthusiasm and optimism that things would go well.

But I've always believed that in public sector banks, there is a lot of talent but because of the huge numbers; talented people do not get spotted in time. Maybe HRD procedures are not advanced and need to be strengthened. If you're able to get the right man on the right job, they're second to none in the industry. They will come out with flying colours and become a formidable work force.

So, HR skills are important?

Yes, and communications skills too. You have to get to know the people. So, I started meeting the managers; then officers and then the third line staff — a tough and time-consuming job; but it had to be done. I realised they were all a part of the bank and I was the outsider. So, I can't be very critical.

The task given to me, and the picture before my mind, were that I had to strengthen this bank and that would not happen just by criticising. You have to pick up the strong points and work on them. So I said there have been problems in the past, but I don't want to discuss that and the future but the present. You have to remember the past to the extent that you don't repeat the past.

Picking on the strengths of the bank, I said `look at the clients who stuck with us even when the days were not so good.' This was amazing and the trump card on which I have built it up today. In the last nine months, my savings bank has grown by Rs 501 crore; and that is one of the yardsticks of growth: The acceptance of the customers.

And a reflection of its service...

We have been focussing on service. Also, through internal restructuring, we merged branches that were not doing well. A bank is a financial organisation; you have to lend to make money. Unfortunately, the decision-making in the bank had been badly affected and for some time, we had stopped lending... almost for three years. To strengthen any financial organisation you must have a steady income. So, we brought out a lot of simple retail schemes. In the first month of my coming, we started on housing and consumer loans and related things.

We gave a big ad after seven years — the catchy thing about it was that one will get a decision in 48 hours or else he/she does not have to pay the processing fee.' After all, hese were simple loans.

How was the response?

Very enthusiastic. In October 2001, we came out with a good festival offer on housing. Up to December we had disbursed Rs 400 crore just on housing. This month, another Rs 50 crore has been sanctioned. These are loans where the risk is spread and the spread itself is slightly more.

What is the amount you have lent totally under retail schemes?

Over Rs 750 crore till December.

How does it compare with last year?

About half of this.

Are you meeting your targets?

Last year, we started implementing the restructuring plan, which was vetted by the Union Government and the RBI, and as per that we're achieving targets on a quarterly basis. Changes have taken place, like merger of branches and de-layering. Also, all accounts with large credit — Rs 50 lakh and above — are being kept in specialised branches manned by experienced officers with the knowledge of credit because handling large credit definitely requires specialisation. The bank has had large NPAs and we have to take care that we don't continue this over again.

What has been the response to the changes you've engineered?

Today, through our communication and interface with branch mangers... each of my branch mangers knows what is the cost of my deposit; the return on assets, total expenses and income and finally the likely slippage I may have in NPAs. Armed with such information, he is in control of the situation. With the economy changing rapidly, the branch manager should know the cost at which he is doing business. A bank like ours, which has to come back to profitability, has to not only get income but also reduce expenditure. This awareness — in all humility I say this — I have tried to create in this bank.

What is the scene on the NPA front?

Right now, they are at 21 per cent gross, having come down from 40 per cent two years ago. Last year, we did a recovery domestically of Rs 482 crore; and globally, Rs 547crore. This year, I want to target Rs 300 crore; we've done Rs 160 crore till now; this year the going is tougher; real estate has to pick up and there have to be buyers.

How important do you think is the environment in which people work?

I am convinced that a comfortable environment brings out the best in you and the people around you. Comfortable does not mean that you do not work under stress; that you are not working with anxiety is what makes a difference. A good environment makes people think and once people start thinking at work, they can do wonders.

What about profitability? Can you give some details of your operational profits? From this point on what is your goal for Indian Bank?

One is, of course, to remove this prefix of a `weak and sick' bank. That will come from operational strengths. From 1993 to 1999, we were making losses. And then in the financial year 2000, we made a profit of Rs 40 crore. That came entirely from our operations abroad. Here, we were still making losses. In 2001, we made a profit of Rs 61 crore which included Rs 6 crore from domestic operations. It is very important for the bank to improve its profitability and that's what I'm looking at closely now.

But still you're making only gross profits; what about your net losses?

Last year, the net loss had come down by 36 per cent. I was to receive government re-capitalisation that has not yet come. Had that come, perhaps we could have looked at better days.

What is your target for this year on gross profit?

We've done better than our targets. It's difficult to give you a number, but let me say I'm looking at a good gross profit.

Would you call yours a weak bank even today?

Technically, we are a `weak' bank because we do not have the required capital adequacy.

How does that change your leadership role?

In a weak bank, when you have this kind of an assignment, there are a lot of things you have to do that are over and above what you would normally do as a chairperson. There are times when you've had nationalised banks not accepting your letters of credit and you have to fight it out. There are times when you have to fight for yourself saying: `Why not; I'm a Government of India entity, I'm a sovereign organisation.' Because we're the only bank which made a net loss, we come into a category by ourselves. So we have to work harder. Our performance today has to be seen in the backdrop of the fact that I haven't got an advantage over anybody. I have to work under the same scenario with the same kind of competition as any other bank. I've not been given any leverage. No leverage at all. The same kind of rates of interest applies to me. So, whatever little progress we have made has to be seen in the backdrop of the economy not doing so well, interest rates falling and our bank having a large exposure in core industries such as steel, cement, textiles and sugar; industries which are not doing well.

Your Singapore branch is in trouble on capital adequacy norms too?

Yes. In Singapore, the licence doesn't get renewed as the technical requirement of the country and the law of the land say that unless we are re-capitalised, we will not get the licence. With great difficulty, we managed to get the licence renewed last year.

When does that lapse?

March 31.

But the Government of India had promised you the requisite re-capitalisation.

It is part of the restructuring plan.

So, will you have to close the Singapore branch?

I hope not. I am very hopeful that this capital should come.

What is your dream for the banking sector?

There is this hype about the private sector banks. As I said, public sector banks have a lot of talent; but they have to become more focussed on what they are doing.

Are these banks caught up too much in the rigmarole of bureaucracy and red-tapism?

I would say now changes are taking place. Banks are taking certain positions. Indian Bank, for example, is going into the retail sector. Some of the public sector banks are very strongly into the treasury operations and some have a large exposure to the corporate sector. In Indian Bank, as other banks too, more focus is being laid on the rehabilitation and restructuring of accounts. When you find major economies going through difficulties, for banks to be successful, and granting that banks have a very important role in rejuvenating the economy, you have to look at the rehabilitation and restructuring of accounts. Giving timely help is very necessary.

But, are banks really interested in doing that?

You have to do that. You have to be very realistic and practical as a banker. And for this experience, not only of banking but of the overall industrial sector, counts. To take care of your asset portfolio, you have to know how a particular industry is doing and how it can be helped out.

Today, the RBI says — as of 2002 — your capital adequacy has to be 9 per cent. But in future, perhaps, this is going to be bank-related. The bank would have to critically analyse its asset portfolio and perhaps decide for itself what kind of a capital adequacy it should have. It should have that flexibility; the RBI would determine it of course; but there has to be a very honest assessment within banks about its assets portfolio. Tomorrow, I should not get into an alarming situation.

In that context, how is the NPA story changing?

See, the recovery in NPA is going on all the time; it is not that it has started now. But what banks used to experience, and Indian Bank is no exception, is that the slippage on the NPA was large. Every year between January and March you'd suddenly add a large NPA and say `I recovered so much but there has been fresh slippage; I am back to square one or perhaps, I've even worsened the position.'

In this background what we're now saying in the Indian Bank is that `let's now carefully put our focus on the standard assets or those accounts that are doing well'. We now have a special department to monitor the standard assets so the slightest of signals you see, you take action at the right time to prevent it from slippage. You see if there is a further requirement or need to re-phase the instalments or whatever, so you're able to prevent damage. That is the bank's responsibility. Ultimately, the banker has to understand that he is a partner with the business and I keep telling my boys that they must know the customer well and understand him.

But, this is hardly happening.

It has to happen. Take monies being diverted into a different business and the bank not knowing about it; wilful default. Diversion of fund stories keep on coming, but diversion does not happen overnight.

So if you have a personal interaction with the customer; you'll get the signals.

Exactly. You must say: `Okay, he is a manufacturer of cutting tools, then why is he getting close to somebody in real estate.' Often, this happens with profits, but then core competence is important.

But, are you doing this in your bank?

I'm telling our boys to meet the customers more frequently. How else will you know what's happening? Balance sheet is important, but banking is much more than the balance sheet. Look at the way the economies of various industries keep changing during these volatile times. The graphs will keep going up and down, but what you have to look at is whether the man behind the business has the inner strength and the capability to comeout of a difficult situation. That is important.

It is in your interest to help him out.

Yes, it is timely help that is important. Of course, you have to understand the difference between mala fide and bona fide and that line itself is very thin. Another thing, I'm looking at in the bank, and this is what most bankers are today complaining about, is that there should be a method of measuring non-performance. Most of the time we are measuring performance. How about non-performance?

But, are you doing that?

That has to be done. You should have some clear-cut methodology for that. Because, ultimately in public sector, let us understand, you can't pay anybody any more than what is stipulated, except you can promote the right person at the right time.

That is the measurement of performance. And, at the same time, give him a good position. Apart from these two, you can't do anything more. That is why I ask `what is the best form of motivation in a public sector bank?' It is just promotion and a good posting. People, nowadays, are very clear. None of your fancy words is going to take you through for a long time. You have got to be very down-to-earth.

Send this article to Friends by E-Mail

Stories in this Section
IFFCO-Tokio aims at Rs 75-cr premium income

`Banking is much more than balance sheets' — Ms Ranjana Kumar, CMD, Indian Bank