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C.R. Sukumar

Mr B. Vasanthan, CMD

HYDERABAD, Feb. 22

ANDHRA Bank sees itself in a phase of transition in the backdrop of a falling interest rate regime. In a bid to spread its risk and improve margins, the bank has chalked out a programme to address the retail banking sector, besides enhancing its distribution channels and product portfolio. Apart from preparing to market insurance products, the bank is putting in place the infrastructure for distribution of other products, including mutual funds. The Chairman and Managing Director, Mr B. Vasanthan, spoke to Business Line on this and other issues. Excerpts:

What do you think are the reasons behind the decline in both return on assets and return on equity?

The decline in return on assets was due mainly to the extraordinary expenditure on account of VRS payments and the interest paid to the Government on capital returned. The total amount in respect of VRS plus interest on capital returned was about Rs 75 crore. Had it not been for such expenditure, the return on assets would have been about 0.96 during 2000-01 as against 0.67 as recorded. That is also the reason for the decline in return on equity. But for this, our net profit would have been higher by Rs 75 crore.

There has been a fall in non-interest income to gross income. What were the reasons for this?

Apart from commission and exchange, non-interest income includes income from trading in Government securities. While a good part of last year was not favourable for Government securities, it has been favourable this year. We will report a healthy non-interest income during the current fiscal year. Does this mean that you will focus on investing in Government securities?

Investing in Government securities is not a profitable alternative in terms of the funds it diverts from industrial and other credit. As a bank, we should normally expand our credit and restrict investments to the extent of requirements under SLR. However, since there are not many avenues for credit expansion, we are putting money in Government securities.

How long do you see the situation where there are not enough avenues for credit expansion and enhanced Government securities investments, lasting?

Some of the news reports indicate that are signs of credit expansion. Things should look up. Post-September 11, even the American economy has started picking up. The US Federal Reserve has stopped reducing interest rates. Reports say that business confidence the world over is picking up.

What was the reason behind the fall in spread?

The fall in spreads was due to the presence of high-cost deposits. We are trying to shed these deposits and expect to shed most such deposits by June.

Don't you think the rush to invest in Government paper will result in a fall in yields?

The problem of falling yields will arise if and when interest rates start moving up. The Government securities in which the banks have invested at lower yields will start depreciating at that point.

How can banks insulate themselves from such a scenario?

It is to avert such a situation that the Reserve Bank recently came out with guidelines by which banks were asked to set aside a substantial portion of the profits earned on sale of Government securities, in the Investment Fluctuation Reserve. Against a total investment portfolio size of around Rs 8,000 crore, Andhra Bank has to create an investment fluctuation reserve of around Rs 400 crore over five years. This will work as a cushion in any eventuality.

Does the RBI move indicate that interest rates may start moving up?

There are no such indications as of now. In fact, the reports in the market suggest a move towards lower interest rates.

Where is Andhra Bank headed in the changing economic scenario?

The bank is in a period of transition. We plan to expand our points of sales beyond the branch network to include ATMs in the next two to three years. We have chalked out plans to set up at least 200 off-site ATMs by September and infrastructure for the same is being put in place. A pilot run of networked ATMs is scheduled by the first week of April. Around Rs 25 crore has been invested on developing the ATM network.

Besides, in our effort to emerge as a market-friendly bank, we have opened about 125 personal banking centres. These centres are manned by officers trained specifically to handle retail credit. They have also been trained in customer relationship management. No extra infrastructural costs have been incurred on these centres, which are essentially branches within the branches. How effective do you think these personal banking centres will be?

The personal banking centres, set up in September last year, have added around Rs 330 crore to our credit portfolio. Seen as high voltage centres, they focus on the development of personal loan portfolios — housing, personal and educational loans among others and seek to sanction loans in 48 hours. We have added 35,000 new borrowers through our personal banking centres. We intend to set up another 75 such centres by the fiscal-end. Apart from building up our retail portfolio, we are also encouraging a lending culture among our gross-root level officers.

Will these specialised centres confine themselves to lending activities?

No, the officers at our personal banking centres have been trained to handle marketing of insurance products as well. We sought the help of United India and General Insurance in this effort. This will ensure that we have ready infrastructure and trained personnel as and when the Insurance Regulatory and Development Authority relaxes the conditions on corporate agency for public sector banks.

We have also trained and designated about 75 officers as client relationship officers. They will be posted to the metros and urban zonal offices and are being given geographical allocations. They will meet the existing and potential clients and act as an interface between the bank and client. Banks have shifted their focus from project finance to corporate finance and further to retail finance. Where do you see them going from here?

The fact that we are focussing on personal banking does not mean that we have given up on other finances. All varieties of financing will go on side by side. For the time being, however, retail banking is the focus. It helps us spread our risk. Rather than concentrating large sums on one or two corporates, it is prudent for the bank to have a diversified and well-spread credit portfolio.

Has there been any change in your growth plans?

I don't think that growth plans can be determined in terms of deposits. So far, banks have been talking about market share. I think the time has come to talk about opportunity share. We will have to look at building up our bottomline rather than a bloated balance sheet.

If the situation requires it, the balance sheet size will have to be controlled, so long as it results in increased profits. For us, the profit per employee will be the criteria as opposed to the business per employee.

Our balance sheet size last fiscal was around Rs 20,000 crore. It may stay at those levels this year too. We are concentrating on building up profits. The availability of deposits is not a problem at all in the current scenario. It is a question of affordability. We have shed a substantial portion of our high- cost deposits. Our credit-deposit ratio as on December 31, 2001, was around 53 per cent as against 45 per cent last year.

What are the new opportunities you are looking at?

We are looking at opportunities in distribution of insurance products. We are also planning to distribute mutual fund products. The distribution of a diversified group of products, such as insurance and mutual funds, will aid growth in our non-interest income.

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