Bangalore-headquartered Vijaya Bank entered the ‘mid-size’ league at the close of financial year 2013-14, with its total business crossing the ₹2-lakh crore milestone. Even as the public sector bank tempered its loan growth in the infrastructure space, it stepped up the momentum on the retail and micro, small and medium enterprise fronts.

To bring down dependence on high-cost bulk deposits, the eight-decade-old bank stepped up efforts to garner retail term deposits and low-cost current and savings account deposits. In an interview to Business Line , V Kannan, Chairman and Managing Director, explained the rationale for deposits growing faster than loans; why corporate loan books of banks have grown despite economic slowdown; and the road ahead for his bank. Excerpts from the interview:

How was your business growth in financial year 2013-14?

Last year, one of the milestones that our bank achieved was that we came into the mid-size segment.

Our business (deposits plus loans) crossed ₹2 lakh crore. In fact, our deposits grew by 28 per cent and loans by 17 per cent. We made a conscious effort to moderate the loan growth. Our infrastructure loans portfolio grew by only 10 per cent.

This is where we moderated credit growth because we still feel that this sector is yet to get clarity on various policy and other issues.

So, predominantly the loan growth has come from the retail and micro, small and medium enterprise (MSME) segments. Within the retail segment, home loans grew by 20 per cent. The MSME segment clocked 24 per cent growth.

What is the situation on the corporate loans front?

In the last one-and-a-half to two years, no new investments happened and no new capacity addition came up. Whatever capital expenditure happened was only by way of replacement or change of technology or peripheral additions. So, borrowing by large corporates for capacity expansion was not there.

Still, corporate loans are growing for most of the banks. Why? Whoever (corporates) had external commercial borrowings, that is, overseas borrowings, and whenever they come up for rollover, either they were not getting rolled over or the pricing was so high that it did not make sense.

So, many of the borrowings by corporates outside India got shifted to domestic banks’ books. And added to that Foreign Currency Convertible Bond redemptions by some corporates were funded by Indian banks as part of the debt restructuring exercise.

Till nine months back, the gems and jewellery sector was operating on non-fund basis. Now, perforce they have to operate fund-based only. Now, you see where the credit growth has come from.

What is your outlook for deposit and credit growth in the current financial year?

This year our plan is to grow deposits and advances by 19 per cent each. Now, you will ask the question: “Why deposits grew faster in FY14?” There were two reasons for this.

First, we wanted to reduce dependence on high cost bulk deposits. So, we activated our campaign for retail term deposits as well as CASA (current account and savings account) deposits with a very conscious view on cost.

Second, we gave a call to all our staff members that we should reach the benchmark level of ₹2 lakh crore of business, which milestone we crossed in March. Now, we are a mid-sized bank. Having built up the (deposit) franchise, going forward we have to balance the assets and liabilities.

So, the investment book will remain intact till that time. That is why this year we are targeting 19 per cent growth in credit and deposits each.

When it comes to credit, our concentration will still be predominantly on the retail, mid-corporate and trade segments. It is not that we will not be looking at the corporate segment at all but provided clarity on policy issues comes through.

We can’t ignore the industrial/corporate segment. But our focus is not on that.

What is your bank’s position on the asset quality front?

We were very conscious about asset quality. That is why you will find that our gross non-performing loans (NPL) ratio today stands at 2.41 per cent. This ratio is one of the best in the industry. The net NPL ratio stands at 1.55 per cent, with a provision coverage ratio of 64 per cent.

The efforts made to bring down the NPLs have borne fruit. The gross NPL ratio had peaked in September at 2.77 per cent (of gross loans). But it improved to 2.67 per cent by December-end and further to 2.41 per cent by March-end.

Normally, when you look at the asset quality you have to look at it not only from the gross NPL point of view but also include the restructured loans.

If restructured loans outstanding of ₹4,234 crore as on March-end 2014 are included, then our total impaired assets will nudge up to 5.15 per cent, which in today’s economic environment can be considered reasonable. As far as restructured assets quality go, Vijaya Bank is placed better.

How much capital will Vijaya Bank need to raise this year?

Two major things happened during FY14. Out of the ₹14,200-crore capital which was allocated by the Government to various banks, we received ₹250 crore. Further, we raised ₹250 crore via Tier-II bonds. But the most important thing was that the Government permitted us to convert perpetual non-cumulative share capital aggregating ₹1,200 crore into core equity in February.

So, after this conversion, the Government’s shareholding has gone up from 58 per cent to 74 per cent. At the same time, our entire Tier-I capital has now become core equity, which is at 8.13 per cent as against the minimum requirement of 6 per cent under Basel III. This gives us tremendous headroom for raising Tier-II capital. So, for the current year, even if the Government doesn’t give any additional capital, we are comfortably placed to handle business growth.

How does your bank stack up against other public sector banks?

Among public sector banks, Vijaya Bank was at the 17th position (among 21 public sector banks) in terms of total business (deposits plus advances) as on March-end 2013. Probably, from the 17th position we have now come up to the 15th position. While business-size wise we may not be able to go up much (in terms of ranking), we have given a call to employees that at least in terms of some efficiency parameters — gross NPLs, net NPLs, provision-coverage ratio, per employee business and per branch business — we will be among the top five public sector banks. These are some of the parameters which we are looking at.

Consequently, this will get reflected in better return on assets, which the market is looking at. By improving efficiency parameters we will be adding to the strength of the balance-sheet.

Though we are adequately capitalised for the current year, next year we necessarily have to come into the market. So, we need to give assurance to the investors that the bank is strong and also able to deliver consistently quarter after quarter. That is what we will be demonstrating during the year.

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