Bangalore-based Syndicate Bank does not count among the market's favoured bets in the banking sectors at the moment. In the last one year, the bank's shares tanked 21%, compared to a 14% decline in the benchmark Bankex. Declining profits and lack of a clear growth plan were the key factors for the underperformance, analysts tracking the stock said.
This situation has made it an uphill task for M G Sanghvi, the newly appointed chairman and managing director of the state-owned bank. With 31 years of banking experience, the veteran has just kicked in his new innings with two pronged priorities: reduce the cost of deposits and increase the yield on advances. Moneycontrol.com caught up with the CMD during his visit to Mumbai.
A section of market participants claim the lender is averse to sharing its plans with the market and has not given any clear-cut direction for growth.
"This smaller public sector bank has to bring down its interest expenditure along other operating expenditure. Though Syndicate Bank's revenue has been growing but net profit so far is flattish. Interactions with market participants need to be increased. This will help bring more clarity about the bank's activities," said V.V.L.N. Sastry, country head, Firstcall India Equity.
Below is the edited excerpt of the interview:
Q. What are your top priorities to run the bank?
A. We are conservative in financial accounting. My top priority is to reduce cost of funds while improving the yield on advances. We are increasing our dependence on low cost funds. We are spreading it to our retail products. We have tightened the appraisal process. Recently, we have started a new credit delivery system for faster loan sanctions.
In March 2012 the cost of deposits were up 130 basis points year-on-year at 6.74% while the yield on advance was at 10.98% as against 9.52% a year back.
Q. How do you plan to grow your loan book?
A. We do not have any vigour of substantial growth in the large corporate sector, though the existing pace of growth will be maintained. We have put a break on short term loans, clean loans (loans without securities) and project loans. We are more interested in sectors like manufacturing, service industry or any sector where cash flows are very strong. Moreover, we will focus more on retail, micro small and medium enterprises (MSME) as well as agriculture credit.
Wherever, credit risk is well spread and margin is better. Unless, reasonable spread is available, we will not do credit business only for volume purpose.
Our bank is likely to post 20-21% credit growth. However, it will be reviewed in October-November depending on the prevailing economic conditions.
Q. What are your plans for retail business?
A. Currently, retail credit forms 20% of our loan book. We will grow it to 26% in FY13. Initially, we will use the network of 2,700 branches. We will increase it by another 300 branches in FY13 pan India basis.
On deposit side, we would like to ensure more mobilization of low cost deposits through current account and savings account (CASA). We are confident that aggressive marketing will help improve CASA by 200 bps to 33.5% by March, 2013. We have already reduced our exposure to bulk deposits. We will go for it only when there is a good spread of 1.5-2%. The maximum we are quoting 9.50% rate of interest on term deposits. We are looking at 17% deposit growth in FY13.
Q. You have an exposure of around Rs 180 crore in ICOMM Tele. Does the concern over bad loans persist?
A. We cannot afford further slippages. For ICOMM Tele, the case has been referred to Corporate Debt Restructuring cell. The restructuring is under process. It is not yet admitted. We have asked them to reduce the exposure in PSUs. That part is under discussion stage. However, I don’t think, our exposure is at around Rs 180 crore.
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Moreover, we have six-seven loan accounts in restructuring process involving Rs 1,050 crore. We have already provided for it in Q4, FY12.
Q. Your outlook on interest rates…
A. We don’t foresee any major change in interest rates in the next three months. Any further reduction of rates is not expected in the near term. Immediately after the latest RBI policy, we have slashed base rate by 25bps to 10.50%.
Q. What capital support do you expect from the government in FY13?
A. We received Rs 357 crore through stake dilution to LIC in FY12. Further, we requested the government to give us a capital support of Rs 539 crore in the same year. But due to certain limitations GoI couldn’t provide it. However, we are hopeful to get something in this quarter (April-June). Currently, our tier I capital adequacy ratio (CAR) is at 8.94% as per Basel III. It may go up by 0.50% after the proposed infusion.
Meanwhile, we are working to determine our capital requirement for Basel III. Right now, there is not urgent need. The necessity seems to be manageable.