Have a turnaround mandate for IDBI Bank, says MD & CEO Mahesh Kumar Jain

State-run lender IDBI Bank is grappling with a whole host of issues. The recent downgrades by rating agencies have also impacted the stock.

In an exclusive conversation and first ever television interview, the newly appointed Managing Director and CEO of the bank Mahesh Kumar Jain talks to CNBC-TV18's Latha Venkatesh on the way forward for the bank.

Jain said he has a turnaround mandate for the bank with a focus on cost reduction and revenue improvement.

With regards to addressing the NPA issues, he said they have changed the organisational structure. “We have created a dedicated vertical exclusively to deal with NPAs, as well as the flow of NPA,” he said.

Below is the verbatim transcript of the interview.

Q: You are coming at a time when the bank is in a very difficult situation. What is your turnaround strategy, what was the mandate that you got from the government?

A: First of all, I will touch upon the strength of the bank. The bank is having extraordinary brand value and brand equity. It is having an institutional mindset, large number of institutions have been created by IDBI Bank in the financial markets which are of highest order today. By development finance institution (DFI) status, the bank is having extraordinary expertise and skills available in the credit.

Apart from that, bank is having very high order of retail and franchise; very strong retail and franchise which is equivalent to the new generation private banks. The bank is having very good clientele base and the clientele base is to the order that if I analyse the per ticket CASA, per ticket retail exposure or per ticket SME exposure, per account and per account other income which is equivalent to the new generation private banks, very high than the public sector banks. Bank is known for its turnaround strategies by providing various advisory services through IDBI Capital and others in the market to various people. So, these are the strength.

Now in the areas which we are going to focus, we are focusing and we are identifying the areas with regard to the cost reduction, finding out the avenue’s to improve the revenues in a sustainable and a profitable manner. We identified six areas.

First of all the banks should have a capital light business model. So, in the capital light business model our focus is that we have to grow our retail book and priority sector book substantially, whereas the corporate book, we need to shed or de-grow the corporate book or rather to churn the corporate book in such a way that we can save the capital from the corporate book either by shedding the high risk weighted assets or by increasing the margin of the pricing on those risk weighted assets. So, that is one strategy.

Second is we are focusing from liability led strategy to the asset led strategy. So, the focus will be more on the liability products. Presently we are having quite high proportion of high cost deposit and bulk deposit. Our cost of deposit is high whereas our CASA growth is very good. Consistently it was 20-22 percent, so our focus will be on improving the CASA, reducing the bulk deposit. During last one quarter Q4 and till date we have shed around Rs 35,000 crore of bulk deposit and high cost deposit. So, that will improve the fund management resulting into reduction in the cost on the expenditure side.

The third area which we have identified is improving our cross selling because as I told, the clientele base is very good, 68 percent of the banking is on digital banking. 82 percent of the customers are having internet banking account, so, presently we are having 1.5 product per customer. So, we are going to do the analytics, we are going to cross sell to our existing clients to improve the income as well as the product offerings.

Q: The more important targets which investors will want to know is on non-performing assets (NPA). Obviously you are coming at a time when the NPAs are above 20 percent, the gross NPAs, so, the credit cost as well is very high, what is the goal on both these parameters for the current year?

A: On addressing the resolution of NPAs and credit, one thing what we have done, we have changed the organisational structure. We have created a dedicated vertical exclusively to deal with the NPAs as well as the flow of the NPAs. So, credit monitoring and NPA which is headed by one of the best executive director of the bank. So that we have done it, supported by the whole team to do the data analytics.

The NPA, 78 percent of the NPL book of the bank is in the consortium. So, when it is in the consortium, we cannot push the very hardcore recovery measures. We need to understand the industry, we need to understand the business, and we need to engage with the bankers to find out the resolution either by way of S4A or change of management, or SDR, and restructuring. That will give the scope for upgrading that account.

So, with that and slippages, we are focusing on credit monitoring, the data analytics, the SMS, the internet, through that we are going to start from SME0, SME1, SME2, RFA, early warnings signals, so, there will be a dedicated focus on preventing the slippages. With these two strategies, I am confident that in FY17-18 the slippages will be lower than the FY16-17, credit cost also will be lower than the FY16-17.

Q: You gave me a growth strategy and an NPA reduction strategy, both these will require capital. Are you confident, has the government given you the confidence that you will be given what you want?

A: I am confident that I will be getting full support from the government of India as a larger shareholder. Second, we have identified certain areas where we need to reduce our Risk-weighted assets (RWA). That exercise we did and we reduced RWA from Q3 to Q4 to the extent of around Rs 60,000 crore. So, the same strategy we are going to adopt so that my denominator may reduce.

Second, we have identified non-core assets and we have a plan in place. We have formed a committee and non-core assets we are going to down-sell during this financial year at the right time and the right valuation. So, these three areas I am confident that we will be able to get the capital augmentation to the extent required.

Q: The more immediate problem that you face is the rating downgrade by the rating agency. What is the immediate impact on the bank, does it mean that your borrowings will become expensive?

A: The rating agencies are having basically two concerns and that is the reason they have downgraded our rating. One, on the asset quality side and second, on the weak capital. As I explained earlier, on the asset quality side, we are taking a lot of initiatives by improving our underwriting standard, addressing the slippages, and we are taking dedicated efforts for recovery and resolution to the existing NPA. So, that will help as far as asset quality is concerned.

Capital, as I told, there will be efforts from the bank side to augment the capital and there maybe support from the government side also to augment the capital. So, these aspects will basically reduce the fear of the rating agencies in next 12-18 months’ time.

Q: Are you hoping that you will be upgraded back by the rating agencies in a year or 18 months?

A: I expect and I hope that we should be looked into by the rating agencies in that perspective, but probably they will start their action once they are able to see the results. So first we have to show the results to them and then I can expect and demand a rating action.

Q: The other part I wanted to ask you and you alluded to it, non-core assets. What is the plan in terms of disposal of non-core assets, any timetable you can give us?

A: That is what I told earlier that we have identified the non-core assets and we have formed a committee also headed by Deputy Managing Director (DMD). We are in constant touch with our various subsidiaries as well as the market players who are keen to come and invest in those non-core assets. So, we have already started.

Real estate also we have identified where surplus space available with us, how we can best use it. If we are not able to use it, we will sell it in the market to mobilise money and to augment the capital. So, we are on track.

Q: Some numbers on what kind of deposit growth you are planning, what is the low cost deposit growth that you are planning and advances as well, what are your numbers for the various sub sectors?

A: We are targeting for this financial year CASA growth of around 20 percent, retail term deposit around 8-10 percent, and bulk deposit and whole sale deposit a reduction. Overall growth, we are targeting to maintain the 75 percent certificate of deposit (CD) ratio. That will reduce my cost of funds.

On advances side, as I told earlier, our focus will be on retail, priority sector and there we are targeting around 15-18 percent growth. There may be de-growth because of a strategy in our corporate credit. There may be a little bit growth on our mid-corporate side. So, end-to-end, the growth in FY17-18 on the advances will be maintained with the CD ratio of 75 percent.

Q: I was hoping you will give me some targets on NPAs as well, gross NPA is at 21 percent, so, within this year what is the expectation?

A: Present net NPA is 13.21 percent. We are targeting that net NPA should come down at least by another 2-3 percent minimum in this financial year. My internal target is around 10 percent.

Q: You are also at above 10 percent net NPAs under prompt corrective action of the Reserve Bank of India (RBI). Does it mean constant conversation, do you have to meet them regularly?

A: Yes I am constantly in engagement with the regulator, I am constantly in engagement with the government also with regard to finding out various workable solutions and to find out how we can work around. As far as NPA resolution is concerned, in various accounts we are the leader.

So, we have identified wherever we are the leader, we have fastened our process in engaging with various bankers as well as the client. I have already done a lot of interaction with the various corporate clients, one-to-one, and wherever we are the member in the consortium, I am in discussion with my counterparts of the large banks to find out the solution.

Q: IDBI Bank has always been at the center of NPA resolution simply because it began as a DFI. The CDR cell itself was housed in IDBI. Now when I last spoke to the Deputy Governor, SS Mundra, he said that the CDR cell should continue its work and act as the secretariat of the joint lenders' forum (JLF). Any progress on this thought?

A: I expect that there should be some thought process at the regulatory level with regard to providing a permanent secretariat structure because if there is a permanent secretariat structure to JLF, it will not only fasten the process, it will monitor the progress also wherever it is left open. The CDR structure is already available made by various resources from the other banks and it is at arm’s length from IDBI.

There is a CDR empowered group which is again at the senior level participation and there is a core group. I believe that there is a scope to extend the mandate of the CDR to include the JLF. It may be broad based by bringing more professionals to engage on day-to-day basis with various lenders and the borrowers for quicken the process.

Q: One of the things that RBI announced in the first week of May is that when bankers come to the JLF, they should come with authorisation to resolve and they should not refer back to board. Have you taken the decision to empower your JLF members?

A: It will be in the next board. So, we will be going to the next board and that was one good action taken by the regulator because once mandate is already given to the JLF, and based on that mandate each banks have already decided the course of action, then it is a procedural matter to give the approval and that should be rest with the executive powers.

Q: Do you see other banks also doing that very soon?

A: Yes, I feel that other banks also must be taking the board level approvals of the delegation of powers to their executives with certain structured way or with certain structured manner.

Q: I know you told me that you are not at liberty to take names, but I am at liberty, I know that this week the JLF for JP Associates met and resolution is at hand. What is your sense, can we see this getting resolved within a couple of weeks?

A: I am very optimistic, I am an optimistic person. I think there should be some improvement because our regulatory is also actively engaged with all the stakeholders in the market. Bankers are also engaged with themselves and with the client as well. I think there should be some good news in the times to come.

Q: I also know that bankers are meeting the RBI on the entire NPA resolution architecture. You guys are going to be meeting the RBI on Tuesday; what exactly are you wanting from the RBI?

A: First of all, for getting the resolution I think all the financial stakeholders are actively involved, be it government, or the regulator, or the banks, or the ARCs, and the rating agencies, and Indian Banks' Association (IBA) platform also. There are a lot of enablers, already there a lot of enablers.

Now with this ordinance, what we are expecting that there will be a quicker decision, faster decisions, there will be confidence among the lenders, there will be more seriousness and more responsiveness from the borrower side. Probably the investors also may show better interest because there will be transparency in the entire process. So, with that I expect that the decision making process will be quicker and faster.

Q: Are you going with any specific requests, some bankers were saying they want the CDR tweaked and they want the S4A tweaked because many cases are falling between them. What is your wishlist for the RBI?

A: One thing basically what we are looking forward for entire thing that if there is a proper setup, there are proper regulations, there are defined guidelines, that will help the bankers and all the stakeholders.

Expanding the oversight committee is another important area. There is a need to bring more professionals by expanding the scope of the overseeing committee who can engage with various resolution authorities in the country including the prospective investors. So, that we are expecting.