From a massive loss of ₹3,764 crore in the December FY19 quarter, exactly four years ago, Bank of Maharashtra (BoM) posted a ₹1,036 crore of net profit in December FY24 quarter. Not only has the Pune-headquartered public sector bank risen like a phoenix from the ashes, it also seems to have hit a sweet spot.

This is after BoM was put under Reserve Bank of India’s prompt corrective action framework (PCA) in June 2017 due to its high net non-performing assets (NPAs) at 12.48 per cent in June 2017. The government cumulatively infused ₹9,007 crore equity capital between FY17 and FY20. But in just about two years, the strictures were eased, after the regulatory norms, including capital conservation buffer (CCB) and net NPAs, fell below six per cent each by December FY19, making it a PSU bank case study for successful turnaround.

“We scanned the balance sheet and set a few goals such as reaching an operating profit of ₹2,000 crore per annum (or ₹500 crore per quarter) for every ₹1-lakh crore of business and started working towards it. Out of the operating profit, the provisioning, including tax, will be 50 per cent. So, the balance ₹ 1,000 crore p.a. (₹250 crore per quarter) should be booked as net profit,” said AS Rajeev, MD & CEO, BoM, explaining the turnaround efforts charted by the bank.  

In Q3 FY19, BoM had clocked an operating profit of ₹191 crore for every ₹1 lakh crore of business. The total business (deposits ₹1,36,002 crore + advances ₹89,594 crore) stood at ₹2,25,596 crore.

Cut to Q3 FY24, the bank recorded an operating profit of ₹463 crore for every ₹1 lakh crore of business. The total business (deposits ₹2,45,734 crore + advances ₹1,88,670 crore) stood at ₹4,34,404 crore, and the operating profit was ₹2,012 crore in Q3 FY19.

The bank is now close to the goal of recording ₹500-crore operating profit per quarter for every ₹1-lakh crore of business.

No doubt then Rohit Rishi, Executive Director, borrows yesteryear’s famous Onida TV’s tagline — ‘neighbour’s envy, owner’s pride’ — to reiterate BoM’s recent success. What’s more, given the granular changes, this journey is expected to be a secular upward climb.

Rajeev noted that earlier 70-75 per cent of the bank’s branches and business were concentrated in Maharashtra. If political issues and climate change hit the State, agriculture loans turn sour.

“We reduced the concentration risk by growing outside Maharashtra. We opened about 750 branches in the last 4 years, and 98 per cent of them were outside Maharashtra. Because of this expansion, the bank has a pan-India presence (2,401 branches), with diversified portfolio. Our business growth rate is very high due to the new branches. When the industry was growing at 15 per cent, our bank has grown at 25-30 per cent,” he said.

Branches closed

Simultaneously, BoM rationalised around 100 branches in Maharashtra. Branches were closed down after exhausting all other options — shifting, merger, conversion into customer service centres or business correspondent points.

Due to the branch expansion and focus on retail, agriculture and MSME (RAM) loans, BoM’s portfolio composition has changed. From RAM to corporate loans mix at 50:50 in December 2018, the ratio has altered to 61:39.

Consequently, BoM also has one of the best profitability profile among PSU banks, with net interest margin or NIM almost touching the 4 per cent mark. “Our NIM has increased by 6 basis points quarter-on-quarter from 3.89 per cent to 3.95 per cent. We want to continue to have a NIM of 3.75-4 per cent,” Rajeev explained.

He is equally mindful of price wars in corporate loans. “We don’t undercut beyond a certain level. When our cost of funds is increasing, we reduce the proportion of corporate loans,”  he said, adding that corporate loans are very price sensitive. He’s proud to point out that in the last 5 years, only one corporate (₹200 crore) has gone bad.

“NPAs can be likened to cholesterol in arteries. They will choke loan growth as well as profitability. Cholesterol must be brought down. We give priority to profit maximisation [bottomline] over topline,” said Rajeev.

Shares rise

That the stock market is recognising BoM’s transformation is underscored by the fact that it comfortably managed to raise ₹1,000 crore in June 2023 from the market independent of the government. BoM’s share price have also zoomed from ₹14.89 apiece on December 31, 2018, to ₹53.40 in January 25, 2024. It’s capital to risk-weighted assets ratio stood at a comfortable 16.85 per cent in Q3 FY24, though the perceivable headwind is a possible capital-related exercise as the government’s shareholding needs to reduce from 86.46 per cent to 75 per cent.