The Hindu Business Line : `New biz strategy has helped Bank of India's profitability'

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Chennai Feb. 12 Good south Indian coffee will definitely be available at the Bank of India executive cafeteria at its head office in Mumbai. Mr M. Balachandran, Chairman and Managing Director, says that's one thing he had organised soon after he took over in June 2005.

The soft-spoken Mr Balachandran has done a number of other things too, aimed at improving the functioning of this 100-year old bank.

Described by colleagues as "highly analytical, in tune with Government policies as well as ground realities", Mr Balachandran has earned admiration for pushing through changes without losing his touch for grassroots banking.

Beginning his career in 1970, as a direct recruit officer in Bank of Baroda after completing his masters in agricultural sciences, Mr Balachandran rose through the ranks to become General Manager and later Chief Executive of the bank's operations in New York.

Subsequently, he came to Bank of India as Executive Director and then took over as CMD.

With another three months to go before he lays down his office, Mr Balachandran, shows no sign of being ready to hang up his boots. There's plenty to do, even in the next few weeks, he says.

The bank's performance in the third quarter surprised a number of market observers. Mr Balachandran elaborated on the financials in an interview to Business Line and explained why the performance in that quarter is not a flash in the pan. Excerpts:

Bank of India's performance in the third quarter this fiscal was better than most public sector banks. How did you achieve this?

Our net interest income showed substantial improvement. Our net interest margin has gone up systematically and was at 3.76 per cent compared to 3.56 per cent last year.

This must be seen in context of 20 per cent of our assets being international and in overseas markets.

We don't get the margin we get in domestic markets.

Our CASA (current account and savings account) proportion is around 42 per cent of total deposits and has grown by 26 per cent.

Even in this, we have more from current accounts, which are very difficult to get. And by the way, this is not just the year-end figure, but fortnightly average.

A bank can have a CASA of 40-45 per cent. That's not easy; it's actually a bit difficult, in fact.

This has helped us contain costs. Importantly, our bulk deposits constitute just 13 per cent of total deposits.

On the lending side, remember our growth in 2005-06 was less than the industry. We were not in the competition for lending then at sub-PLR rates.

We were choosy. Our credit expanded only to the extent that we found was competitive. That saved us - since we didn't have to pick up bulk deposits last March.

This fiscal our credit growth is 31 per cent, year-on year. But the growth has mainly come in the last six months when the rates have hardened. So, yields have gone up while costs have been contained.

How did you increase your CASA deposits?

That was made possible because of business process re-engineering. The moment we switched to CBS, we were able to hive off a number of activities to the back office and saved about 2,000 jobs.

Of that, about 1,000 people have come to centralised operations such as clearing and account openings.

We have sent about 1,000 people for marketing. Not all of them are good. But half are very good.

We have been able to open 11 lakh new savings bank accounts in the last nine months.

Migration to core banking solutions, rolling out technology driven products, harnessing surplus staff, hiving off back office activity ... all these have helped capture more CASA deposits and contain costs.

What about the performance of your investment portfolio?

That has been a strong point. We have in our SLR portfolio just above what is required. Eighty per cent of the securities have been shifted to HTM (held-to-maturity) category. So, we wont be affected if there is an upward movement in rates.

Of course, our non-SLR portfolio, a significant part of which is accounted for by corporate bonds, has also gone up. The modified duration of our portfolio, including HTM category, is 3.5 years.

You have gone in for a joint venture recently in insurance. Isn't it a bit late to enter now?

It makes a lot of business sense. We have gone for a joint venture with Dai-ichi Mutual Life Insurance Company. They are the second largest insurance company in Japan, the sixth largest in the world and are known for insurance of middle class and poor. So, we chose to partner them along with Union Bank.

As per the business model, it will break even in the sixth year, with about six lakh policies. We have about 24 million customers; Union Bank has about 20 million. In six years, this is going to grow exponentially. To cross-sell is going to be easy. We have 60,000 people. Insurance needs people.

Besides, the insurance penetration in rural and semi-urban areas is very low. We have a big network of branches in these areas, including about 1,000 regional rural bank branches. Together with our partners, who have 600 such branches, we will start our joint venture with about 6,000 branches. No other joint venture has this kind of a start, except may be SBI Life. This will add value in the days to come.

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