The Hindu Business Line : ‘Need a proper balance between growth, profitability strategies’

If your fundamentals are strong, there is room for everybody. The argument about size started about 10 years ago – if that were true, we all should have collapsed by now. – Mr N. Kamakodi, CUB’s Executive Director

N.S. Vageesh

Chennai, Jan. 2 Reading Mr N. Kamakodi’s quotes in print given in his capacity as Executive Director of City Union Bank give one the mental image of an elderly and experienced banker. When you meet him in person, his youth – despite the presence of a beard – gives you a pleasant shock. He is 33 years young.

He has come a long way, from his early days of studying in a small panchayat union school (due to his father’s insistence on a grassroots primary education) in his native village of Thippirajapuram, about 7 km from Kumbakonam. Moving thereafter to Kumbakonam to complete his schooling and thence to Regional Engineering College, Tiruchi, to complete his chemical engineering degree, Mr Kamakodi admits with a shy smile that the transition saw him shift a little from the ‘proper and obedient good boy’ to a slightly more naughty but more self-confident youngster.

Securing a job with Reliance Industries at its Hazira manufacturing division near Surat in 1995, Mr Kamakodi rates the three years that he spent there as Planning Engineer, as a terrific exposure to the dynamics of project management. He says he compressed the experience of 15 years into those three years. Moving to Hong Kong to do his MBA, then returning to India and trying his hand at a BPO venture that didn’t take off happened in a flash. He joined the bank in 2003 as DGM- HRD & Planning, on the advice of a few well-wishers and his family. He was elevated to GM in charge of credit in 2005 and then as Executive Director in 2006.

How did colleagues react to his arrival? He says most executives had worked with his father (the earlier chairman V. Narayanan), and so it was like dealing with family. He says he was a trifle diffident initially so as not to rock the boat. He says that while all of them have been supportive, nobody has a reservation to discuss an opposite point of view. He says with disarming frankness, “About 10-20 per cent of the time, I will not have the option of exercising my authority. Overall, it has been a cohesive team and the atmosphere has been professional.”

In this interview, he deals with a number of issues that old private banks are facing. Excerpts:

Old private banks as a group face the issue of small size. How are you coping with problems that arise because of being small?

Size matters only when there are problems of exposure and risk management. Otherwise problems are proportional to size. Of course, size matters in getting respectability, accessing cheaper funds in the global market – but there are also disadvantages.

As long as efficiency, cost structure, business models are robust, and you are willing to take right decisions as you move on, size is not an issue.

If you take convenience of clients, say for someone with a turnover of Rs 50 crore, they’ll find it more convenient to reach out to smaller banks where they can approach higher-ups directly. That niche market will always be there.

You need a proper balance between growth and profitability strategies. If this fine line is not understood, banks get into problems. If your fundamentals are strong, there is room for everybody. The argument about size started about 10 years ago – if that were true, we all should have collapsed by now. There is place for the small. We have been growing at about 25-30 per cent during the last few years and we think it is sustainable.

What are the challenges you face on the technology side?

We have linked all our 180-odd branches (including the remotest rural branches) under core banking. How we are going to make use of the technology is the biggest challenge. Technology has helped leverage our internal strengths. In the last 10 years, branches have doubled, and business has increased four to five times, with the same manpower.

In the next stage, we have to figure out what other services can be given to our clients, which they are not currently using. We have to see how to stretch and better utilise our resources. That itself will take care of growth opportunities. Every fifth year you need to revamp your system. When we grow bigger, we have to keep migrating from platforms.

Now the challenge is to use Business Process Re-engineering (BPR), data mine, and use cost-effective multi-channel delivery system and roll out new products. All these things will make our bank on par with the best. The next stage for us is to make more services available.

How much have these investments cost you?

In hardware and software, we have invested about Rs 50 crore in the last four to five years. Different models are available and in future we may see more of application service provider (ASP) models – may be when we go for our next upgradation. So far, our return on investments in technology is very satisfactory.

What are the challenges with regard to manpower? How do you cope with attrition?

We looked at the pattern of people leaving our bank. One set leaves within six months – they feel they are unsuited for a bank job. There is another group that leaves after three years and wants to join another bank for better prospects. Then there is a small group of operational managers who hop after seven to eight years. But after about 15 years, the hopping almost stops.

In terms of HR policies, we are quite open. Still there is a gap in salaries between new and old banks. It will be difficult to match what they offer. But if salaries alone had been the criteria, we should not be in business now.

We are comfortable with current levels so far. At the officer level, attrition is not alarming.

About 12 years ago, when the new generation banks came in, the problem was high. But now, although there is a problem, it is manageable.

What was the objective of getting strategic partners such as L&T and LIC?

It is basically a financial investment for them. There is no board participation or management partnership. I’ll give you the background to their investment.

When the RBI laid down a requirement of Rs 300 crore of net worth for banks, our net worth was below that limit. Considering that the sector could be opened up in 2009 or 2010, we felt that in order to maintain our space in this industry, we needed a business mix of Rs 25,000 crore along with a net worth of Rs 1,000 crore by 2010.

When we had net worth of Rs 250 crore, the capital base itself was only Rs 30 crore. The balance was internal generation. In the next few years, we felt that we could grow to a net worth of Rs 600 crore at the same pace – but there would still be a shortfall of Rs 400 crore going by our estimates.

We examined various options, including a public issue. We came to the conclusion that the efficient way of raising capital was through a preferential issue. Of course, the investors had to be quality investors, approved and accepted by regulators, having a good reputation and who would not in any way compromise the bank’s interests for their personal interests. Our investors such as L&T, LIC and FMO Netherlands, meet these criteria amply. We raised about Rs 140 crore through them.

We may have to go to them for one or two more rounds in future. It has been a win-win situation for all. The relationship has opened the doors for the bank to augment its fee-based income. It has helped enhance the respect enjoyed by City Union Bank. We are happy and confident about the future.

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