‘Catholic Syrian Bank moving to a more stable and sustainable earnings base’

Catholic Syrian Bank — one of the oldest private sector banks in the country — has not fully lived up to its heritage and exploited the business opportunities that were available even as newer entrants have marched past and left it behind during the past decade. There has been churn at the top and a new chief executive at the helm every few years has affected the bank’s plans to an extent. The current incumbent CVR Rajendran, who has been in office during the last year, has focussed on cleaning up the balance sheet and putting in place a new structure to place the bank in a different growth trajectory. The bank is placing emphasis on doing business through “clearly defined verticals and clearly defined roles”,

he said in an interaction with BusinessLine . Excerpts:

The bank seemed to have done well last fiscal when it made a profit after posting a huge loss in FY16. But appears to have slid again, reporting some losses in H1 of this fiscal. Why?

The net profit of ₹1.55 crore of FY17 was driven by treasury profit of ₹196 crore. It may be noted that if we exclude the treasury profit (which was due to the favourable yield movements in FY17), there was an operating loss of ₹44 crore. But if you analyse H1 figures, we have made ₹43 crore of operating profit, of which, the contribution of treasury was only ₹2 crore. Thus, now we are fast moving to a more stable and sustainable earnings base.

How do you plan to bring down the cost-to-income ratio from 75 per cent?

Reduction in the cost-income ratio will be primarily driven by revenue growth, combined with re-engineering of staff structure. Other than staff cost, if you conduct a common size statement analysis, our costs will be the lowest in the industry.

Staff cost is high due to the IBA pay structure, combined with high average age of employees, which, in turn, was contributed by the fact that we practically had zero recruitment during the period 1998 to 2007, which has caused a sort of ‘missing middle’ in our staff composition.

Now, we are addressing the same through selective lateral hires and low-cost non-IBA hires at junior levels. These initiatives will address both the numerator and denominator of the cost-income ratio in a benign way as the cost per employee will be lower while revenue per employee will be higher, since we also will be building a robust performance-based pay matrix.

The bank has had a new chief executive every two years in the past decade. What is the reason?

VP Iswardas (who had joined the bank as a probationary officer) was appointed MD and CEO for a period of three years from November 30, 2009, to November 30, 2012, and he demitted office after completion of his term in November.

Rakesh Bhatia (from HSBC) was appointed MD and CEO for three years from April 1, 2013. However, due to personal commitments he had to resign from the post in March 2015.

Anand Krishnamurthy, who was also from HSBC earlier, was appointed MD and CEO w.e.f. July 4, 2015, for a period of one year which was extended for one more year. Unfortunately, he also had to leave the position in September 2016 due to personal commitments.

What has been the damage due to short tenures of CEOs?

Rakesh Bhatia had designed a strategy woven around SMEs and retail-focussed lending with emphasis on retail deposits and CASA, which continues to be our overall strategy. During his tenure, the bank inducted external talent in certain key posts/verticals.

Anand too continued the same strategy and also focussed on improvements in the processes. But in this period, the bank had to grapple with unprecedented increase in NPAs, mainly from certain legacy corporate and large SME accounts.

It was also the time when the bank was working on an IPO process to raise much-needed capital. After getting approval from SEBI, due to adverse market conditions, the IPO was abandoned.

Resultantly, the bank could not garner adequately enough capital to go ahead with business expansion, key strategic initiatives and other requirements as originally planned.

Now I can confidently say with the support of numbers that the worst is over on the NPA front. We will be one of the few — if not the only bank — whose net NPA has come down in September from the March level.

What have been your achievements in the past one year as CEO?

On joining, my first priority was to clean the balance sheet, which I did in the first three quarters. Then the focus was mainly on recoveries and arresting slippages. Resultantly, we recovered ₹141.88 crore in H1 FY18 while the entire recovery in FY17 was ₹103.18 crore.

Another challenge which I was facing was low credit-deposit ratio which has led to negative carry for the bank, since over ₹2,500 crore was deployed in short-term treasury assets.

I have shifted a significant portion of this to top-rated corporate lending so that there is return enhancement without eating into capital.

In the SME space, we are working on making our appraisal and rating systems robust before taking the big plunge, and learning from past mistakes. We have brought back our focus on gold loans and other retail loans.

For the first time in the history of the bank, we are running a book-building process through a merchant banker for raising the required capital.

The skew in the number of officers (1,634) compared to clerks (939) is very high. How is this proposed to be redressed?

This follows the industry trend since the role of clerks is now getting increasingly redundant, thanks to the advances in technology, while the role of the marketing person is increasing by the day.

There has been a provision of ₹1.80 crore for fraud. Why was this done? Has the fraud been identified and the damages calculated? What steps are being taken to avoid recurrence?

This relates to a couple of accounts due to external fraud committed by customers. We have strengthened our internal controls after this.

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