Nearly four months back she took charge of Bank of India (BoI), a state-owned lender reeling under excruciating asset quality pain. So, the elevation came along with greater responsibilities to tackle bad loans. Meet V R Iyer, one of two woman chairpersons of public sector lenders in India.
Nearly four months back she took charge of state-owned Bank of India (BoI), which has been grappling with asset quality issues for a while now, and slipped in rankings among its PSU peers. Over the last year, Bank of India shares have fallen roughly 20 percent, compared with a 10 percent rise in the CNX Bank Nifty. The margin of underperformance has narrowed somewhat in the last four months as the new boss is trying to regain the confidence of shareholders-existing and potential.
Bank of India shares have risen roughly 2 percent since November, compared to a 1 percent decline in the Bank Nifty during the same period. But it is too early to make an inference. As Iyer herself admits, it is a long road ahead before Bank of India can count itself among banks with the best asset quality. To begin with, Iyer is addressing some of the issues at the field level, so as speed up the decision making process.
"When a bank has to grow your process should be right. Only if when the process is right, my decision will be faster and the process should be well accepted by everybody in the organisation," she told moneycontrol.com in her first one-on-one interview after becoming the chairperson & managing director.
Since last three months she has been traveling extensively across the country. The objective is to tighten coordination among different level of bank officials. At the same time, she wants to make each bank branch more customer-friendly.
Below are the edited excerpts of the interview:
Q. What initiatives have you taken since you joined?
A. I have tried to bring stability at all levels. My growth percentage in retail and SME (Small and medium enterprises) have been very less. So, I have been traveling across the zonal offices and staff, driving them the passion to attain business targets. If they face rigidities, I am removing those. We have set the process largely.
I am already witnessing the improvement in the retail percentage growth. These were in single digits. Now, it has crossed that. In many of the zonal offices where I have visited, the growth is around 20-22 per cent on the retail and on the SME side. So, people have started acting on it.
Q: Are you confident of retail growth?
A: Currently, the retail portfolio (excluding SME loans) is only around 11 per cent (globally). The share of retail lending in many of my comparable banks is at 20 per cent. All this retail and SME loans have to be done at the ground level, branch level, operating level, zonal level.
I am trying to drive it wherever it is not happening. SME book is also very less, just about 8 per cent. You will find the improvement in the next two quarters visibly. Even this March quarter would see some betterment.
Q: Are you also looking for developers' tie-up to ramp up home loans?
A: We are looking at dealer tie-ups. Sometimes I find, at the branch level, sufficient due diligence is not done on the dealers. This may lead to some fraudulent activities. As precautionary measures, I say, why not we do the dealer tie-ups in every area. Once I do that you have to get details only from those dealers. It is a part of the risk mitigation measures.
We have been doing the developers tie-up since the last 1.5 months. Things are falling place. The size may not be substantial. Once, a home loan borrower puts legal documents it is then only a question of sanction process only.
Q: Traditionally, BoI is is averse of retail credit. Your comments...
A: You are right. We didn’t. Given a choice everybody would be in the comfort zone (corporate lending). Doing retail is always difficult. With a little more effort, one can do one big account instead of 10 retail loans.
However, the mindset has to be changed. Diversification is always better. I am always able to better absorb non-performing assets (NPA). If one corporate account goes bad, it hurts so much than 10 retail accounts.
Q: Are you expecting any ugly surprise on NPA front?
A: Last quarter (October-December) we reduced our NPAs from 3.48% to 3.04% and even net NPA to 1.97. You will find improvement in Jan-March quarter also.
Q: How are loan recoveries going on?
A: Loan recoveries will definitely improve quarter-on-quarter basis. My slippages are reducing and will bet better. It is reflective in our NPA performance. We are getting good results from the small ticket loans, particularly from Small Scale Industries (SSI) units. Up to December our recovery position is Rs 1,014 crore against Rs 1, 205 crore during last entire year 2011-12. So, definitely we are going to exceed this.
Q: Are you also selling bad loans through Asset Reconstruction Companies?
A: We have just started but we may not be doing anything before March. There is no point in hurrying it. However I don’t know how far it will fructify.
Q: Last February you have reduced your base rate, now it is 10.25. Any impact on net interest margin...?
A: From March, 2012, we have shed the high cost deposits of almost Rs 22,000 crore. I am replacing with low cost deposit system, term deposits or retail. High cost deposits are now at 13% as against 33 per cent earlier in March, 2012. Lower cost of funds helps us maintain margin.
Our deposits may grow around 13% in 2012-13. People are going for gold buying to get higher return. High rate of inflation is eating away people’s savings.
Q: How are you placed to meet the Basel-III requirements?
A: Next one year I don't have to worry for capital. If the growth also picks up as expected then maybe as on December or post December I will get some more capital from the government. If required I will explore the option of qualified institutional placement (QIP). Otherwise, there is no need for capital next one year.
Q: How workable is the idea of making defaulters' names public?
A: We will have to rethink about it. I am not immediately endorsing to that. There is always privacy and that will come in the way. You can’t just differentiate customers in doing that. You will not give the big ticket names but only tell to the smaller ones. It is not correct and fair. Previously some banks were doing this practice but then it was not pursued.
I will have to study that angle (discrimination) from the legal point of view before we take a call. It is not so workable solution and so easy a thing to comply with.
Bank of India stock price
On December 23, 2014, at 09:18 hrs Bank Of India was quoting at Rs 293.00, up Rs 1.65, or 0.57 percent. The 52-week high of the share was Rs 356.75 and the 52-week low was Rs 166.00.
The company's trailing 12-month (TTM) EPS was at Rs 42.54 per share as per the quarter ended September 2014. The stock's price-to-earnings (P/E) ratio was 6.89. The latest book value of the company is Rs 465.37 per share. At current value, the price-to-book value of the company is 0.63.
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