‘Thrust on retail, SME loans will help us in risk diversification'

Andhra Bank plans to expand its retail and small and medium enterprise (SME) loans portfolio at a faster clip than the wholesale loan portfolio. By doing so, the Hyderabad-based public sector bank will achieve two objectives — diversify risks and improve yield on advances.

According to Chairman and Managing Director Mr B. A. Prabhakar, his bank's total business (deposits plus advances) will grow by over Rs 1-lakh crore in the next two years.

Prior to taking charge of Andhra Bank, Mr Prabhakar was Executive Director at Bank of India for three years. Before his elevation as ED, he was with Bank of Baroda for about three decades.

In an interaction with Business Line , the Andhra Bank chief outlines his thoughts on the banking sector, in general, and the road ahead for his bank, in particular.

Excerpts from the interview:

Way forward for Andhra Bank

We are targeting a business size (deposits plus advances) of Rs 3-lakh crore by March 2014. We are now at Rs 1.90-lakh crore. This works out to a compounded annual growth rate of 30 per cent.

We are planning to achieve business growth by opening about 200 branches each this year and the next. We opened about 300 branches in the last three years. So, besides the 1,700-odd existing branches, the new branches will also contribute significantly to our growth.

We will focus on the retail and SME space. Right now the share of retail, agriculture and SME advances in total advances is around 45 per cent. We would like to take the share of these advances to about 60 per cent.

This will happen over the next three to four years. The direction is towards that. Growth rate in the retail and SME segments will be higher than the growth rate in corporate business.

This thrust on retail and SME loans will help us in risk diversification. Today, our exposure to corporates is in a few sectors such as steel, power, and infrastructure. So, our loan portfolio requires diversification.

Retail and SME loans are small-ticket loans and we believe that focus on them will be a very good risk-diversification strategy. Moreover, on a risk-adjusted basis, the yield on retail and SME loans is better.

Credit and deposit growth targets

We are targeting a deposit growth of about 20 per cent (last year we were at 15 per cent). We are also targeting a credit growth of 20 per cent (17.5 per cent).

Our credit-deposit (CD) ratio is already at about 78-79 per cent. I think a CD ratio of around 75 per cent is more sustainable and will not create much of liquidity stress on the bank's balance-sheet.

Despite having a 78-79 per cent CD ratio, we did not face any liquidity constraints at all last year. We were quite liquid and most of the time we were having marginally surplus liquidity.

Our branches have sustained a 20-22 per cent growth in deposits in the past. If inflation comes under control, I think investors should start looking at bank deposits seriously. Also, we will have to explore newer markets for deposit mobilisation. We would expect our branches to really work for higher deposit growth.

Given the high level of government borrowing and also the credit targets that banks may have to meet, I think deposit mobilisation is critical. So, if the rates of interest that banks offer on deposits are not really attractive, it will be very difficult for them to mobilise deposits.

On NPAs

Like other banks, our non-performing assets (NPAs) also went up last year. But in the third and fourth quarters, we have seen strong recoveries. We recovered about Rs 1,000 crore between these two quarters. So that has helped us bring down NPAs from almost about Rs 1,980 crore in September 2011 to about Rs 1,880 crore in December 2011.

The recoveries in the fourth quarter have been strong. We are awaiting finalisation of audit. We expect an improvement in asset quality. Recoveries have been quite good and slippages, by and large, have been contained.

NPA recovery will be done mostly in-house. We are not looking to sell NPAs to Asset Reconstruction Companies. Monitoring of stressed accounts has been strengthened. Going forward, we expect the recovery momentum to be kept up.

Downgrading of PSBs

The global credit rating agencies have taken this call based on NPA data as on September. But between September and now, most of the public sector banks (PSBs) have shown improvement in their NPA management.

The position on NPAs today is much better now than what it was in September. I'm sure if the latest data on NPAs are put in public domain, the rating agencies will revisit their assessment of the banking sector.

Loan restructuring

Last year (2011-12), we restructured loans aggregating about Rs 2,000 crore. Our restructured loan book is not very big. As compared to many other banks our restructured loan book is well under control.

Restructuring of loans was necessary. We couldn't have avoided that because many sectors of the economy were going through problems. We expect the restructuring programmes which have been put in place to work according to the projections. Eventually, we will be able to upgrade these accounts.

Telecom and aviation are the two main sectors where we have seen restructuring.

MFI loans

We have an exposure of about Rs 300 crore to microfinance institutions (MFIs). Some of these exposures are in Andhra Pradesh and some are outside. Some of the MFI accounts, which have been restructured, have operations both in and outside Andhra. We expect them to stick to the restructuring programme and I think it will work well.

In States where MFIs have a good legal environment, we have been lending. Wherever the MFIs are constrained by the legal environment, there we are not taking any further exposure.

We are not taking further exposure in Andhra because the MFI business cannot really be a success now. In the current legal environment, they will find it extremely difficult to work. But we are taking exposure in other States such as Karnataka and Tamil Nadu where they have been able to perform well.

SHGs: Alternative to MFIs?

Self-help groups (SHGs) are definitely a better way of financing the poor women in rural areas. In fact, Andhra Bank has a good exposure to SHGs, of around Rs 2,500 crore.

Given that MFIs have not been particularly active in States such as Andhra Pradesh (due to the legal environment), I think SHGs are definitely an alternative to them. Even the AP Government has been urging banks to lend through the SHGs.

They have been asking banks to look at SHGs seriously. By and large, banks have a positive view on the SHG segment.

Investment by India Inc

We expect new projects to come up for financing this year. Last year, we did not see new investments for setting up projects. Now that inflation has started coming down and interest rate expectations are going to be benign, I expect corporates to look at new investments.

>kram@thehindu.co.in

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