The Hindu Business Line : `Sub-PLR lending will continue'

The recovery process that is still under way has been slow and painful despite the bailout package of nearly Rs 3,800 crore offered by the Government over the past decade.

Successive chiefs of the bankhave had the shadow of non-performing assets and the large bailout hanging over them. Dr Kamlesh Chandra Chakrabarty, who took over as CMD in June 2005, after a stint as Executive Director in Punjab National Bank, has all-round exposure in key areas of banking including planning, development, research, treasury and international operations.

A gold medallist in M.Sc (Statistics) and a Ph.D from the Benares Hindu University, Dr Chakrabarty did his doctoral thesis on stochastic model for demographic studies.

Excerpts from the interview:

Credit growth for the banking industry has been at 30 per cent plus. Where is the growth coming from? Will it sustain?

Growth is coming from all sectors - industry, agriculture and retail. Investment is taking place in infrastructure.

I am not sure how long the 30-per cent growth will sustain. Deposit growth is still around 15-16 per cent.

Will interest rates go up?

Rates have to go up. If you take housing loans, the present rate of about 8 per cent is very competitive. I am giving my depositor about 6.5 per cent. I need 2 per cent for my transaction costs. We are giving it for a 20-year period. Banks are not looking into interest rate risk and liquidity risk. This is unsustainable in the long run.

Then why are you giving housing loans at 8 per cent?

When I look at the borrower, I see him as a total package - he may give me deposits; I can sell him other loans. That is why we are willing to give loans at that rate.

Wasn't this the same argument used in the corporate loan market also? It doesn't seem to have made much impact?

The wholesale market is always loss making in any developed market. In the corporate world, there is nothing like a relationship. Everything is transaction-oriented. For every transaction, they will ask, "What is the cheapest rate we can get?" Wholesale banking is loss making from London to Mumbai to Chennai.

Has sub-PLR lending come down?

It will come down. Incremental lending will not be done at those rates.

Has such lending stopped then?

No. It won't stop. What is the PLR? It is 11 per cent. Most of my mandated lending is linked to PLR. If I reduce my PLR, automatically all rates come down. There is a distortion in the system, about which everyone, including the regulators and the government is concerned about. So, sub-PLR lending will continue. But it may not be 6.5 per cent or 7 per cent. It can be 8 per cent, 9 per cent or even 10 per cent. The negative spread will come down.

The economy is growing at 8 per cent. How will you bridge the gap for resources at this rate?

As of now, there is no gap. I can't have a gap. Whatever resources I have, I have to deploy. But for the system as a whole, there should be liquidity and that is the job of the monetary authority. They can create it. My job is only to manage and deploy resources.

How will you manage this kind of growth?

This cannot continue. Today, there is sufficient liquidity. But it may not be possible in future. Earlier, we were called lazy bankers (an allusion to the fact that bankers did not lend but invested in government securities). Today, we seem to have become crazy bankers.

How is the state of preparedness for Basel-II compliance?

We will be compliant. One way of doing that is to provide more capital. This is the first phase. In the next phase, we need to improve our technology, our networking and our mindset to create better systems and processes. We need to look at risk management and analytics to improve profitability and see this as business opportunity. We are still looking at it only from the compliance point of view. You'll require less capital if it is used efficiently.

How much are you investing in technology?

That is difficult to say. Maybe, about Rs 300 crore over two years. It is no longer a matter of choice. It is a matter of compulsion. If I have to be in banking business, I have to embrace technology in a cost effective manner and increase efficiency. If it is necessary, we may have to spend even Rs 500 crore.

What about recurring costs of upgrading and maintaining technology?

It is a wrong assumption that Indian banks are very costly. The cost-income ratio of the system is about 55 per cent. The best banks globally are at about 50 per cent. We will also come to that level soon, but the real change will be in the cost structure. The non-interest expenses scenario for global banks, which comprise 30 per cent manpower costs and 70 per cent of other costs, will come here also.

Today, for me that 70 per cent is manpower costs. As and when my investment in technology goes up, my manpower costs come down and other costs will go up. My cost- income ratio may still be around 50 per cent. But the composition of the costs will change. This is where PSBs have a big opportunity.

How did your bank recover Rs 300 crore of bad loans this fiscal?

It was a bit of luck and little bit of effort. For the loans that were given earlier, wherever we have land and property as security, prices have gone up. Defaulting clients, who were not coming here earlier, are now coming back and repaying. The SARFAESI Act has also been quite helpful. The borrower also sees an opportunity.

How much do you think you can recover this year and the next?

We can recover Rs 400 crore this year and the next. This is the core NPA. Our net NPAs are less than one per cent. Whatever I am recovering now is from written off accounts and they go straight to the bottomline.

What about fresh capital for your growth?

There are two ways. One, the government can give us capital or two, we approach the capital market. The present capital structure does not allow us to go to the market. We are requesting the government to help restructure our capital base. That means, setting off the accumulated loss against the capital. Only then, we can have about Rs 300 crore to Rs 400 crore capital base, and go to the market and get value. This is a decision that has to be taken by the Government. Our job is to manage the bank and keep pace with the current growth with internal resources. For two years, we can manage about 15 per cent growth with Basel-II compliance. But then we may be losing a growth opportunity - I may not be able to expand abroad.

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`Sub-PLR lending will continue'