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PSU banks must be more agile, focus on low capital-high spread asset model: Bank of India chief

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Public sector banks must become more agile with focus on low capital-high spread asset model along with low concentration risks and smarter delivery mechanism to benefit in the long run, said Bank of India (BOI) chief Dinabandhu Mohapatra.

According to him, the age-old system of asset and revenue-based growth model has caused problems for the banks today.

A career public sector banker, Mohapatra started his career with Bank of India in 1984 and came back to his home bank in May 2017 after a stint with Canara Bank as the Executive Director.

Bank of India’s turnaround plan, charted last year after he joined, paid off in just two quarters as its profits were back in black. However, profitability purged in the December quarter after the Reserve Bank downgraded Rs 13,645 crore worth of loans.

To a major respite, BOI saw recoveries to the tune of almost Rs 9,000 crore in the January to March period alone. Mohapatra pins hopes to come out of the PCA (Prompt Corrective Action) framework, imposed by RBI, that restricts expansion for the bank.

They managed to reduce the bank’s international book by about Rs 25,000 crore since March 2017 to help improve margins. As on December 2017, Bank of India’s foreign business (deposits + loans) has already declined to Rs 2.10 lakh crore, down by over Rs 13,700 crore.

You have been working on improving the bank but loss widened to Rs 2,341 crore in December. How has growth been in the March quarter?

We have capital challenges, so within that we have to generate more margins, the topline (total income) will remain more or less at same levels.

We have reduced around Rs 25,000 crore of international business from March 2017 and entire accretion has come to the domestic business. Rebalancing has to happen to the right kind of business. In percentage terms, their margins was 20-40 basis points and in India we get at least 2-2.5 percent margins.

It will take time to grow domestic but then later on it will be on autopilot. Credit is coming back...low capital consuming and low risk business that has come up, activation of branches is also happening, all distribution points are delivering now, and once you activate them recovery also becomes easy. Now, there will be less slippages because people (employees) are taking ownership.

When do you expect to come out of Prompt Corrective Action (PCA)?

We are currently looking at strengthening our bank get systems in place.  PCA is an enabler, it helps to go in the right direction, book right kind of asset, focus energy on compliance and we have also made a lot of provisions already. We will go for quality assets, minimise concentration risks and recovery should be more. We also have a focused vertical on stressed assets. So let us see, hopefully by this year (we come out of PCA).

Are banks likely to see more haircuts under the insolvency process at the NCLTs?

Initially, it was estimated to be high but with the kind of bids coming in, it gives confidence and we are hopeful, the hair cuts will come down. We hope the big accounts get results in Q1. Also, the new guideline (February 12) has come and all banks will look at them case-by-case. Now borrowers and promoters are also showing more interest to save the account. So it will take one or two more quarters.

Have processes changed after the Punjab National Bank’s fraud blow-up?

We have already started linking our systems to core banking solutions and should complete by April 30.

In terms of internal processes, earlier we observed, one vertical was handling 150 branches. Now, we established around 112 managers to handle 35 branches each. So, one branch will be supported by 5 to 6 officers, key areas like credit recovery financing will be supported by one leader and the area manager knows the branch manager by name and hence has full grip on the branch. They all report to the general manager.

We also want to target our good customers. We have started our separate vertical called Star Prime supported by six area general managers in key financial centres including 4 metros focusing on accounts over 5 crore.  All accounts are focused by these area managers, all their finance needs will be looked after by them, get more business from them and specific clients have specific requirements... This is  showing good results. We also started MDA - most desirable account - largely A graded accounts.

We also started Eklavya where employees are given handsome training and experience at their locations, without sacrificing their time. This will build the right knowledge and skill set as public sector banks have limited technological skills, with IT background.

What is your view on privatisation of public sector banks?

Public sector banks have played a major role in the economy.  We participated in the Green Revolution, White Revolution, Telecom, infrastructure, airports, etc... all this was driven by credit from public sector banks. Today every household has a banking account that is because of public sector banks. We also quickly adopted to the CBS model, IT systems are improving.

But there are lot of weak PSU banks.

Agreed. But a lot of banks are age-old institutions that have niche geographies to cater to, differentiated products and service offerings.  Public sector banks can play a differentiated role with product-specific, need-specific model, targeting a niche area and segment. We do need banks take care of the large population.

Do you think banks need to change their systems as well?

The asset and revenue growth model has caused problems for banks today. Banks must have smart banking strategy, must focus on less capital and high spread asset model, diversified and low concentration book, aim at non-interest income, utilise the non-fund based assets re-price them, become more agile, should become lean and smart in delivery mechanism to prevent frauds, more ownership oriented than employee oriented — all those who practice this will benefit going ahead. This will strengthen public sector banks.