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A.J. Vinayak

Mangalore, Dec.24 Corporation Bank is a 102-year- young and vibrant brand that can attract a wide spectrum of customers, says Mr J.M. Garg, Chairman and Managing Director of the bank. As a brand, it stands for customer trust (spanning over three generations), time-tested financials and an impeccable track record, he says. Mr Garg, who assumed charge as CMD, Corporation Bank, in November, spoke to Business Line on various issues, including the impact of the global slowdown on the banking system. Excerpts:

What is the impact of the slowdown on the banking industry?

Banks are a subset of the larger economy. If GDP growth falls, opportunity for business declines, including for banks. Already, the RBI has revised the GDP growth target to 7.5-8 per cent, and recent indications are that in the next monetary policy review, due in January, the same may be revised downwards even further.

In case of the banking system, the slowdown has been reflected more on the deposit side, with year-on-year growth slowing to 20.5 per cent as on November 21 from 25.3 per cent in the same period last year. On the other hand, credit growth has jumped to 27 per cent from 23.1 per cent.

What is more significant is the fact that while incremental deposits have grown by Rs 5,97,594 crore year-on-year (compared to almost the same figure Rs 5,90,727 crore last year) the credit increment, in the same time frame, has been as much as Rs 5,59,955 crore (up from Rs 3,89,489 crore last year), implying that the surplus resources available with the scheduled commercial banks were merely Rs 37,639 crore (a drastic decline from Rs 2,01,238 crore last year) and therein lies the genesis of the present liquidity squeeze as well as the banks’ drive to keep deposit rates high for driving up deposit growth.

As far as our bank is concerned, we find that deposit and credit growth were fairly well matched at 25.4 per cent and 26.8 per cent, respectively, as on November 21.

What is the business target for the current fiscal? Have you revised targets in the current scenario?

The business target for the year is Rs 1,14,300 crore and the same remains unrevised, since our growth rates have remained at desired levels.

Given the recent initiatives by the Government and RBI, how do you see the direction of lending and deposit rates?

The recent initiatives by the Government and RBI have been aimed at providing greater access to funds to productive sectors such as SMEs, agriculture, exports, and housing, inter alia, and also in bringing about a favourable business environment by providing adequate liquidity by cutting various key rates.

As such, I feel that both deposit and lending rates are headed southwards. However, as I have pointed out earlier, there is the question of credit demand outstripping the resource availability. There may, therefore, be a need for further measures by the RBI to make more resources available for lending.

There is also the question of some more time required by the system to purge previously acquired high-cost deposits to be replaced by lower-cost ones.

Recently, banks cut down bulk deposit rates quite significantly and are likely to effect cuts in retail rates, going forward. As the overall cost of funds declines, it may be possible to effect further cuts in PLRs.

What future do you see for the growth of housing loans?

With the recent initiatives by Government and the RBI, we expect demand to pick up for home loans in the future.

How is the performance in agri loans?

The performance of the bank under the agriculture portfolio has been good. On a year-on-year basis, the outstanding exposure to agriculture as at September 2008 registered a growth of 33 per cent over September 2007. In the first half of this financial year, the agriculture portfolio has registered a growth of 23 per cent over the March 2008 level.

Under the Special Agricultural Credit Plan, the bank has achieved 44 per cent of the annual target for disbursement to agriculture during the April-November 2008 period. Disbursements are picking up in the second half of the year and the bank is confident of achieving the target.

Do you face any default in corporate loans? What could be the extent of this and what are the main reasons for this?

In any credit portfolio, default to a certain level is normal. Due to the system put in place by the bank, the loan delinquency rate is presently very low, at 0.80 per cent, which is among the lowest in the industry.

However, because of the slowdown in the economy, there has been smaller impact on performance in a few industry segments.

The recent initiatives taken by the Government, including growth stimulus package, have been supportive to the industries. Further, banks are also identifying corporates that need timely support to meet their genuine credit requirements. Overall, the impact is only minimal and the same is being addressed adequately. As such, we do not foresee any abnormal defaults in corporate loans.

What plans do you have to increase the non-interest income of the bank?

Our focus is to increase the share of non-interest income to total income to 20 per cent in the next two to three years. We would like to popularise products such as RTGS/NEFT to drive volume growth.

There will also be focus on the insurance and mutual funds business to achieve a growth of 25 per cent in income, besides thrust on the locker business. Continued focus will be there on technology-driven products, CAPS (collection and payment services), and non-fund business.

Is there any plan to raise fresh capital?

The capital adequacy of the bank stood at 12.09 per cent as on March 31 and 11.75 per cent as of September 2008. In order to maintain CRAR at above 12 per cent level, additional capital funds have to be raised to the extent of around Rs 1,200 crore by March. Of this, the bank has so far raised Rs 500 crore.

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