Poor asset quality of the banking sector has been a cause of serious concern. Bangalore-headquartered Vijaya Bank, however, has managed to do well in containing bad loans. It is confident of maintaining its asset quality in the coming months. And, it is now seeking to achieve higher than the industry growth this fiscal. V. Kannan, Chairman & Managing Director, spoke to The Hindu on the bank’s strategies and focus areas. Excerpts:

You have declared 2014-15 as a “Year of reorienting business for profitability”. What are the focus areas?

Vijaya Bank reached a business level of over Rs.2 lakh crore in 2013-14, and that put the organisation into a mid-size bank in the country. While it is not possible for us to reach No.1 or No.2 size-wise among public sector banks (PSBs), we did achieve success in improving asset quality. So, we took a conscious decision that at least in some efficiency parameters we will grow to be among the Top 5 in PSB table. This is the mission with which we started the year’s plan. Also, everything depends on cost control and yield increase. In the latter, we may not have a major say given the size of our bank. Cost control is something we can definitely do. So, the focus will be on profitability and efficiency. This fiscal our entire effort is to transform the bank into an efficient organisation.

What are the initiatives coming along to support your growth plan?

We identified that service at the ground level will be crucial in achieving our targets. We also found that Vijaya Bank is in a phase where more than 1,000 people retire every year, and this will continue for the next 2-3 years. So, in the last three years, we have gone in for extensive recruitments -1,200 people on an average annually. So, about 30 per cent of the bank staff is less than three years of experience. Grooming them and bringing them under Vijaya Bank service culture is also the focus this year. As part of this, we are going for an extensive training, rather skill development, of these people. We are also taking the help of some external agencies. What is required is not the knowledge, which can be given by our staff training centre, but training them on service culture. They are either at the entry level or scale 1 level. They will be manning the branches, and be responsible for service. And, I can see some visible impact of such training.

Vijaya Bank is much better in asset quality when compared with other PSBs. How did you achieve this?

We have been able to maintain our NPA levels well and, hence, the asset quality is better. As of March 2014, we were Number.1 on the gross NPA table among the PSBs, while ranked No.2 in net NPA. We have a very limited exposure to some of the sectors which have been under stress. Of course, these industries are expected to come out of it soon. For example, power sector has been mainly affected. Yes, we do have exposure in power sector. But 75 per cent of it is on State electricity boards’ DISCOMs (distribution companies), and for which a package has already been worked out. FRP (Financial Restructuring Package) has been implemented in six states. There are other states such as Punjab, Karnataka and Gujarat where we have exposure, but, health-wise, they are in good condition. So, we don’t mind much stress. The other sector was mining and in Infrastructure, it is the road segment. Vijaya Bank has traditionally been taking a very conscious decision on the size of exposure that it will be taking in these segments. I can give a very handful of exposures where my single borrower exposure is above Rs.500 crore. The average size of the exposure in each case may be Rs.100-200 crore. Rather than taking one exposure of Rs.1,000 crore, we take 10 exposures of Rs.100 crore. Even by chance – either due to external or any other reason - if there is delinquency, my balance sheet is not affected. So, our bank has put the best risk management practice in place. Our improvements in asset quality will be more accelerated than some of other PSBs.

Are you confident of sustaining the performance on the asset quality front?

Having achieved Number.1 position in asset quality, we have introduced very stringent entry-level processing. We don’t have any entry- level below BBB rating. We want to maintain it. We want to remember at the same time that when we go for high quality I have to sacrifice on the yield. If I focus excessively on retail … there also I don’t get a yield. About 75 per cent of retail is housing loans, which happen at base rate. On one spectrum, the housing loan is at base rate. AAA and AA are also close to base rate, on the other side. So, my yield doesn’t come from this, but from the mid-segment that includes trading category or SMEs. So, our focus is on this. These advances happen at branch levels, while the higher-end advances such as AAA and AA-rated things happen at head office. So, we are trying to concentrate on the mid- segment with exposure of about Rs.10 lakh to Rs.5 crore levels. These sanctions happen basically at branches or at the regions. And, hence, we have gone for extensive skill development of 30 per cent of staff who will be instrumental for this segment growth. Simultaneously, we have taken a few other steps also. That is Rs.50 crore and above exposure will all be handled by the designated branches so that specialist persons could be posted.

Will 2014-15 also be a stressful year for PSBs with swelling NPAs?

The stress will be the same in this fiscal also. During 2008-2010, extensive restructuring had taken place because of the economic slowdown. From 2010 onwards, we are having the sluggishness coming into the economy. In the case of restructuring, there is borrowing and a repayment schedule. But due to technological or government policy changes or economic slowdown, borrower is not able to keep up the repayment and he needs a reschedule. When one goes for a reschedule, it is believed that things will become alright and the borrower will be able to come out of the difficulty. So, the projections will always be positive. In 2010-11, when all these restructuring took place, the projections would have been positive. Also, in restructuring, the maximum allowed was 10 years with two years of moratorium plus eight years. Imagine those cases of 2009-10 or 2011 that have been rescheduled, their two-year honeymoon period would have been over now and repayment would have commenced. But have all the sectors come back to normal? No. So, the stress continued. While stress continued in industries, they also needed additional dose of help. But you are aware that a second restructuring makes the account as non-performing, and from April 1 onwards, even the first restructuring will be downgrading the accounts as new regulations would have come into effect.

Also, most of the restructuring had the condition that the promoter will sell their stake or bring in equity. Of course, the capital market, of late, index-wise is going up. But prices are at such low level, even the promoters don’t want to raise money. If market revives, they will able to bring in their equity, and that will ease the problem. On the other hand, they trying to sell of their assets, but again the valuations were depressed though it has now revived. Thus, slippages and stress are expected to continue for another two quarters. But things are turning positive.

You have set an aggressive growth target for this fiscal. Where do you see the growth coming from?

Both the Government of India and RBI peg GDP growth at five per cent this year. Normally, it is 2.5 times of GDP in the banking sector growth. So, this industry is projected to grow at 12.5-13 per cent this year. If we grow in line with the industry, we will only maintain our market share. But with some aggressive growth map, we think we can increase the market share. So, we have taken a growth target of 15 per cent. In CASA (Current Account Savings Account), we have traditionally been at the lower level of 18 per cent. This year we have taken an ambitious target to reach 22 per cent.

The vision is to improve one percentage point every quarter. In June quarter this fiscal, we improved it to 19 per cent. Also, we do have our own share of retail advances that is growing at steady at 14-15 per cent. SME segment is growing at 14-15 per cent. Hence, we are targeting a reasonable 15 per cent growth.

>balachandar.g@thehindu.co.in

(This article first appeared in The Hindu dated Nov 3, 2014)

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