‘Loan sanction process has been tightened to reduce NPAs’

Winds of change are blowing over old generation private lender Lakshmi Vilas Bank. The bank is introducing a slew of products including three-in-one (banking, trading and demat) account, loans against shares, co-branded credit card and is also tweaking its gold loan product. MD and CEO Rakesh Sharma, who took charge of the bank about a year ago, told BusinessLine that some of these initiatives will help garner low-cost deposits and grow the retail and SME loanportfolio. LVB has tightened the loan sanctioning process so that there are no surprises in the form of bad loansExcerpts from an interview:

What were the challenges LVB was facing when you took charge?

When I joined the bank (about 13 months ago), I studied the major issues faced by it. What I found on the liability front was that CASA (current account, savings account) ratio was a challenge for us. It was quiet low,only 14 per cent.

As a result, our cost of deposits was higher compared with peers and other banks. Second, NPA (non-performing assets) level was very high. Traditionally, the bank has been a retail and SME (small and medium enterprise) bank.

In 2010-11, it was decided that if we want to grow big then we should do more of mid-corporate and large corporate loans also. But then the economy was still feeling some of the effects of the global financial crisis.

As a result, we started facing some problems on the asset quality front. So, those issues were quiet disturbing.

Another challenge was to control the quality of assets. We strengthened the credit monitoring and NPA recovery departments. And each account above ₹1 crore, I was personally following up.

What steps were taken to purge the bad loans?

Based on each (stressed) account, we took appropriate steps. Wherever the units were viable, we did restructuring. Where there were core issues and the account was not likely to be upgraded, we took tough action by classifying the account as NPAs and initiating recovery action. We strengthened our credit sanction process. We formed a credit committee for sanctioning loans.

As a result, the disposal of proposal is very fast. Since each department, including risk management, is represented, a decision can be taken then and there. So, the quality of advances has improved. As a result, during the last one year, we have not experienced any case of quick mortality.

The follow-up level has been improved and monitoring has been strengthened. If despite this, an account becomes an NPA, then recovery starts.

Have you gotten over the bad loans problem?

We have recruited many law officers. At each regional office we have posted two such officers to make recoveries. So to a large extent, this problem has been resolved.

Still there are some cases but I am quiet hopeful that this year we will be able to show further progress.

In 2013-14, we sold some assets, which were hard core NPAs, worth only ₹40 crore to ARCs. In 2014-15, this figure rose to ₹160 crore.

We took a decision that since these accounts are hard to recover let us sell them to some specialised agency which can take faster action and our team could devote more time on getting good advances and business growth.

Last year, we had done some write-off also. But this year (FY2015), the write-off was only ₹15 crore.

Whatever assets had to be sold to ARCs have already been sold and restructuring is also more or less complete.

So, this year, our strategy will be that our recovery and upgradation (of loans) should be more than the slippages so that our gross NPA level does not go beyond the March-end 2015 level of ₹455 crore.

Will it not be better to focus only on retail and SME loans, instead of chasing big-ticket loans?

We have to do both (retail & SME and mid & large corporate) loans. But we have to be very careful. In 2014-15, because some of the retail and SME schemes which we launched started giving us the benefit, the growth came towards the second half. But in the meantime we have been able to build good corporate book also. It is not that all corporates are bad.

So, we have selected some good corporates this year, with good backing of collateral security. With this we have been able to build our corporate book.

Going forward, in the current year, our emphasis will be maintain the loan portfolio mix, more or less, at the current level or the retail and SME percentage level should be slightly higher.

We expect our overall loan book to grow by 23 per cent (against 26 per cent in FY2015). Of this, retail and SME will grow by 25 per cent (16 per cent because of negative growth in gold loans in FY2015).

With the schemes which we started last year like warehouse receipt financing, loan against property, and loan against shares, we will be able to ensure growth of 25 per cent in retail and SME segments.

COMMENT NOW