The Hindu Business Line : ‘Banks have to spot, tap opportunities in crisis’

Kolkata, Jan. 7 The challenge of an economic downturn and a slowdown in credit offtake immediately after assuming the top job at Allahabad Bank has not deterred the determination of Mr K.R. Kamath, Chairman and Managing Director of the bank. “There is an opportunity in every crisis. We only need to keep evolving new strategies in order to overcome difficult situations,” Mr Kamath told Business Line in an exclusive interview. Excerpts:

How do you see the economic downturn impacting the profitability of Indian banks? What are the strategies you plan to evolve to counter it?

There is definitely a pressure on the profitability of banks and if economic slowdown is not contained, it could be difficult to maintain net interest margins at present levels. Having said that, I feel there is an opportunity in every crisis. One needs to continuously keep changing strategies as and when the circumstances change. Last year, banks made good profit out of stock markets. But this year, it is not available to us; in fact, we had to make huge provisions in the portfolio but incidentally, the Government bonds market opened up. So far as Allahabad Bank is concerned, we are constantly exploring newer avenues; new products and services that can help boost our fee-based income We have been importing bulk gold as we already have a licence. We will be starting with the retail sale of gold coins by Akshaya Tritiya (April-May) this year.

We are also looking at various remittance products and are planning to tie up with exchange companies. We are also planning to reposition our cash management business, which has so far been on a low key.

Any plan to revise your growth targets downwards?

The growth targets were kept at 20 per cent for this year but now we are planning to revise it upwards. We are looking at a credit growth of 20-25 per cent as on March 2009. Agriculture and micro, small and medium scal enterprises (MSME) will be the key areas of focus.

What are your plans for raising capital during the next fiscal?

Our capital adequacy ratio as in September 2008 was at 11.48. Now, with the RBI reducing risk weightage, our CAR is at 12.52 per cent as in September. I have headroom to raise Rs 750 crore through innovative debt instruments in Tier-I, Rs 400 crore by way of subordinate bonds and about Rs 2,000 crore through Upper Tier-II bonds. This will be sufficient to maintain the bank’s CAR at a comfortable level of 12 per cent for the next two years, so we will not look at equity dilution at present.

Are there worries regarding asset quality and rising Non-Performing Assets (NPAs)?

If the economic downturn is not contained, there is a possibility of NPAs surfacing. NPA management is a main area of focus for our bank this quarter. On the small-value NPA front, we are organising an incentive campaign for our employees . As far as the bigger NPAs are concerned, we are planning to sell them off to either an asset reconstruction company or banks which are in this business. The gross NPA was at 1.93 per cent and net was at 0.85 per cent in September 2008.

What are your plans of overseas expansion?

We have a branch in Hong Kong and a representative office in Shenzen, but the contribution of the overseas business to our overall balance sheet and profits is very low. We will look at overseas expansion only if it is supplementary to the existing business efforts .

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‘Banks have to spot, tap opportunities in crisis’