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Mr Yogesh Agarwal, CMD, IDBI Bank

Priya Nair
K Ram Kumar

Mumbai, Jan 8 IDBI Bank has not seen any reduction in demand from the infrastructure sector, which has been its focus. This and the bank’s selective lending may help it tide over the economic downturn, says Mr Yogesh Agarwal, Chairman and Managing Director, IDBI Bank. But the bank also faces challenges such as limited network and lower proportion of cheap current- and savings-account (CASA) deposits. In an interview with Business Line, Mr Agarwal explains how the bank plans to tackle these challenges among other things.

How serious is the economic downturn?

The downturn is overplayed. It is not a pan-industry issue. There are still some segments in the industry that are doing very well. Sectors that are heavily dependent on exports like software and sectors like textiles and steel will be under stress. But I don’t think there is need to be pessimistic about the Indian economy as a whole.

For example, infrastructure is still doing very well. Power and telecom are still going strong. What is the credit offtake status for IDBI Bank?

We see a lot of projects coming up. We see a lot of sanctions taking place. Credit offtake is a little slow. For infrastructure projects, the drawals take time. May be corporates are waiting because the general impression is that rates are coming down. When corporates see that interest rates are headed up, they are faster in their credit drawals. Interest rates on most of the term lending projects are reset on a one-year rest basis. It is not a full floating one. So once the corporates lock into a rate, they are locked in for at least one year. For projects that are on, they are drawing normally.

What is the quantum of loans that IDBI Bank has sanctioned this fiscal?

We have seen about Rs 30,000 crore of sanctions across sectors. It was around the same last year. The pipeline is strong. We are gung-ho about the infrastructure sector.

How has the growth been on the retail side?

There are two main components on the retail side — housing and personal loans. On the housing side, because of asset prices being unrealistically high, deals are just not taking place. So, I don’t expect housing loans to go forward, unless asset prices come down.

On the personal loan front, general consumer spends are down. On the SME side, again it’s a mixed scenario. But overall I don’t think there is any significant problem, except inindustries which are export-related.

Since you took over, what changes have you brought about in the working of your bank? All that we wanted to do, in terms of remodelling the platform, has been done. The stage for us now is to take off on the business front. The infrastructure is all there. The only thing which is taking a little time, which is inevitable, is growth in two areas: Staff — we are terribly short of people. We have 500 branches and we have to open 200 more this year. We will be recruiting about 1,000 people this year. Last year, we recruited 700 people. We need people at middle level and senior levels; we really need to grow our branch network. Unless we have a footprint we can’t grow CASA. In some centres we don’t even have a single branch.

IDBI has been in the forefront of merger and acquisition activity in the last few years — IDBI Bank and United Western Bank. So, what plans do you have in this regard?

IDBI is uniquely positioned in the public sector space, because of our experience of merging private sector banks with us. Even though PSUs occupy 75-80 per cent of the banking space, I don’t see much of consolidation taking place in the public sector itself, because the government has to push.

Now you must look at the private sector to acquire in future. We are in talks, but it is too premature to talk about. We are looking for a bank which has a good fit with our business model or a technology fit. Now that we have gone through with two acquisitions we know what to look for. We have no particular favourites in terms of region.

What are your plans, going ahead, for growth and to tackle the slowdown?

We have a strong presence in all sectors. But we are very selective.

While we will definitely grow our balance sheet size, our quality of earnings is different from other banks. We have a predominant stress on the non-funded business. Therefore, our fee income has gone up by 70 per cent this year. By year-end, our target is to double what we earned last year by way of fee income.

Our Net Interest Margins were negative till last year, if you exclude the recoveries. But this year, for the first time after nearly ten years, IDBI has turned in a positive NIM, after recoveries.

Your cost of funds is high compared to the industry. How will you bring it down?

Cost of funds is high because our CASA is very low. We have about 15 per cent CASA. Until we increase CASA our overall cost of funds is not going to be comparable to other banks. And CASA will not grow till we have a respectable branch network.

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