The Hindu Business Line : `Deployment mix, strategy should give us maximum spreads'

ANDHRA Bank, under the leadership of its new Chairman and Managing Director, Mr T.S. Narayanasami, has chalked out growth strategies both in terms of business volumes and profit margins.

The bank now targets a total business of Rs 46,000 crore for the current financial year, a growth of nearly 27 per cent over the business size of Rs 36,324 crore posted last fiscal. In an interview to Business Line, Mr Narayanasami shared the strategies of the bank to bring down the net non-performing assets (NPAs) to zero per cent level, increasing the non-interest income levels and core operating profit margin, ploughing back the profits and ensuring comfortable level of capital adequacy ratio to meet the rapidly growing business volumes.

How do you plan to address the problem of managing spreads in the falling interest rates regime?

In today's context, at every stage, there has to be prudence. Otherwise, we cannot have significant spreads. We plan to ensure least cost in setting up of infrastructure and procuring resources, thereby reducing the cost of funds. Today, the entire banking system is sitting on liquidity. Apart from ensuring sound asset liability management system, we want to ensure that a good amount of our liabilities would be in the form of long-term. Look at the way the foreign banks operate in our country. They first find out the assets and then go in for liabilities.

How do you propose to achieve it?

Our strength is our network. Taking up deposit mobilisation in a big way and enlargement of clientele portfolio is our biggest focus so that we get the benefit of low-cost deposits.

More than focussing on fixed deposits, the concentration would be on enlarging our customer base in the low-cost segment - more current accounts and more savings accounts.

The ideal level would be having 45 to 50 per cent of low-cost deposits and the balance 55 to 50 per cent in term deposits to contain the cost of funds.

Once we ensure this, we would have to focus on the deployment mix with an aim of optimum yields. Being a public sector bank, we need to achieve certain benchmarks such as 40 per cent in priority sector lending, 18 per cent in agriculture and 12 per cent towards exports sector.

For making provision for these segments, we should contain the average cost of funds. Our deployment mix and strategy should give us maximum spreads.

The focus would have to be on the retail finance segment. The retail segment does not confine only to housing finance. We are working out strategy to focus on rental receivables. Wholesale traders segment is another area where we would like to focus on.

What is the strategy for non-interest income?

Non-interest income is going to be another thrust area. We are targeting at least 45 per cent contribution from fee-based income to our total income.

The current contribution level of non-interest income to our total income is around 25 to 30 per cent.

Since non-interest income also includes treasury portfolio, how do you handle it in the backdrop of falling yields on investments?

Non-interest income also includes the treasury portfolio. The yields are falling in the debt market. We need to ensure proper blend of trading in equity and debt markets. Effective churning of treasury portfolio would be our strategy to address the problem of falling yields.

It is volume that matters in treasury market today rather than the coupon rates and the resultant trading profits. We are of the view that the stage has come where there would be no high-coupon bond at all in the securities market in the next couple of years. At that stage, if the capital markets are also quite buoyant, it has to be blended.

Treasury portfolio management is a tightrope walk in the current scenario, where we need to be highly vigilant.

If that is the case, can you depend on treasury management in the long run?

We cannot rely upon treasury portfolio management for long-term profits. We have to depend on fee-based income and ancillary services for optimising our spreads.

Cutting down cost is inevitable. Planning deployment mix to get optimum yield is another area of focus.

With the 90-days delinquency norms, the NPA management needs more attention than before.

Now that all bottlenecks have been cleared for the Securitisation Act, the provisions of the Act needs to pursued effectively.

Management of NPAs is as important as mobilisation of resources and deployment of funds.

What are your targets on business volumes for the current fiscal?

We are aiming for an increase of 20 per cent in deposits and 30 per cent in credit.

Of the total deposits, we are aiming at 30 per cent growth in low-cost deposits so that our effective cost of funds would significantly come down.

How is your credit cards business doing?

Our outstanding in credit cards is around Rs 70 crore. We are planning to expand our credit card receivables to around Rs 150 crore, with returns in the range of 17 to 18 per cent.

This is another fee-based income. We would strengthen our recovery agents network to see that because of 90-day delinquency norm, our credit card receivable do not become NPAs.

We consider credit cards and debit cards to be a good area for fee-based income.

What will happen to high interest deposits that you have accepted earlier?

We are also retiring all high-cost deposits. This means, we will not renew deposits that had high interest commitment. Today we cannot return deposits since it is a contract.

But the RBI is thinking in terms of introducing put and call option for deposits of Rs 5 crore and above.

What about interest rate swaps for increasing spreads?

We have been doing interest rate swapping from fixed to floating and floating to fixed.

Derivatives trading is another lucrative avenue for increasing our fee-based income.

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`Deployment mix, strategy should give us maximum spreads'