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Wednesday, July 19, 2017

A look at how laggards like Lakshmi Vilas Bank, Federal Bank and DCB Bank are scripting a turnaround

From the debris of the Indian banking industry, a small segment of lenders – the old private sector banks – is rising like phoenix with a promise of being profitable, but on a scale that they could afford.

Correction of past mistakes, availability of technology off the shelf, entry of professional managers from large banks, and availability of capital for those with a promise are all helping many laggards of the past turn around.

The transformation in some of these banks is not going unnoticed at the market place with investors cherry picking those banks which are making a difference to the community they serve, and at the same time keep an eye on the financial metrics.

In the growth versus profitability debate too, they appear to be better placed as the state-run banks are likely to be hobbled by lack of capital as they clear the bad loan mess, while large private sector ones would be handicapped by their sheer size tempering their growth.
A look at how laggards like Lakshmi Vilas Bank, Federal Bank and DCB Bank are scripting a turnaround

"There is a bet on select old-generation private sector banks," said A Balasubramanian, chief executive officer at Birla Sun Life Asset Management Company. "Those banks have a balanced mix of retail and corporate loans, which mitigates risks. In the next few years, they should be elevated to mid-sized banks’ league. Their growth will outpace the industry average."

Lakshmi Vilas Bank, Federal Bank, South Indian Bank, DCB Bank, Karur Vysya Bank, Karnataka Bank are on a roll when the banking industry dominated by state-run banks is on the mat. Shares of these banks have outperformed the broader market with them soaring 30-90% in the past year, beating the BSE Bankex's 25% gain.


A lot of these banks are changing with times. Many like Lakshmi Vilas, Federal and Karnataka Bank have professionalised their board of directors and taken their management away from the community that was instrumental in laying the foundation for them.

The Chennai-based Lakshmi Vilas has Parthasarathi Mukherjee as chief executive, a banker who had spent over 20 years in Axis Bank as the head of its corporate relationships. Prior to that, he was with State Bank of India. The lender had in the past appointed PR Somasundaram, formerly with Standard Chartered Bank, as chief executive.

Federal Bank, the Kerala-based lender hired Shyam Srinivasan, who managed consumer banking business at Standard Chartered, as chief executive in 2010. Since then, its loans have surged 132% to Rs 74,091 crore (between FY11 and FY17) and its profits have risen nearly 50% to Rs 257 crore from Rs 172 crore.

"We have broken out the traditional model to scale up," said Srinivasan of Federal Bank. "We have gained acceptance from the markets, customers."

Many of the banks with their new managers from outside the community or the region are beginning to look at the market afresh. They are breaking the barriers of the old by embracing change.

"With a new management at the helm of affairs, our bank is shedding its old image to bring out a new look," said Parthasarathi Mukherjee. "All these are triggering a professional work culture."

The industry comprises four broad segments—state-run banks with about 71% market share, followed by new-age private sector lenders that hold about one-fourth of the market share. The marginal players are the old private sector lenders, which escaped bank nationalisation, and foreign banks together holding less than 5% of the pie.
A look at how laggards like Lakshmi Vilas Bank, Federal Bank and DCB Bank are scripting a turnaround

The old private lenders were a neglected lot with many of them serving a community or, at best, being a regional player, say in a particular state. A Lakshmi Vilas or a Karur Vysya will get dominant business from Tamil Nadu, or Karnataka Bank from the eponymous state. Federal Bank has dominant business from Kerala's diaspora, or DCB Bank from the western region.

Since many had their origins as a community bank, a few controlling dominant groups stifled their growth in some cases. Their financial ratios were the envy of even the dominant ones. Tamilnad Mercantile Bank—which declared a dividend of 1,000% for 2005-06 and 2006-07, and 5,000% in 2007-08— was plagued by fight within the Nadar community. Bank of Rajasthan was under regulatory lens but was forced into a merger with ICICI Bank.


Indian banks in the decade between 2002 and 2012 were binging on the growth in infrastructure and corporate lending. Many of them cut cheques for thousands of crores of rupees for infrastructure projects. The strategy helped them rake in huge profits.

But when the tide turned in 2012 due to a fragile macro-economic condition with high fiscal and current account deficit, excess of imports over exports, banks were left with defaulters. Bad loans have since surged to almost 10% of total loans.

"These banks are now seeing themselves in a better position to grow as larger peers are saddled with high NPAs and hesitant to further lending," says Kuntal Sur, partner-financial services, PwC, a consultant. "They have capacity to expand, as they have lower non-performing assets compared to larger peers, in particular PSU banks."

Many like the Mumbai-based DCB Bank are seeing opportunities to grow. "Our idea is to double the loan book in three to four years to reach Rs 30,000 crore," says Murali Natarajan, CEO, DCB Bank. "We will be small but we have got to be meaningful in terms of our technology, business and service to customers.


Although many of these banks could not match the size and scale of state-run banks, or the service efficiencies of the new-age private sector lenders such as HDFC Bank and ICICI Bank, the staff of old private sector banks are close to their customers and know their needs. They also bring that personal touch to the table which is usually missing at the banking behemoths.

"Our board wants to see the organisation being handled more professionally. Having said that, what is also important is that we have always treated our customers, staff members and stakeholders as a family and that culture has always been there," said K Venkatraman, chief executive, Karur Vysya Bank.


LVB, DCB and Federal Bank have adopted technology to offer services almost at par with the big four in Indian banking.

The proliferation of technology is making a difference. About two decades ago, when banks wanted to improve the processes, the choice was top guns like an Infosys Technologies or a Tata Consultancy Services.

But in the past few years, many innovations introduced by fintech startups have made life easier. Some technologies like Unified Payments Interface (UPI), Immediate Payment Service (IMPS) or data analytics are available off the shelf that narrowed the gap between a State Bank of India and a Karur Vysya Bank.

"We are spending considerably on technology and that will clearly give us an edge in day-to-day business. Eventually it will lead to substantial savings in operational costs," said Mukherjee of LVB.

Technology is enabling them to acquire customers. Lack of past growth is a blessing in disguise. Billionaire Prem Watsa’s plan to buy a controlling stake in Catholic Syrian Bank may have come a cropper, but is a sign of things to come.

"If they continue to surpass the average banking industry growth in terms of assets and liabilities, these shares will yield above average return to shareholders in coming years," says R Sreesankar, head -institutional equities, Prabhudas Lilladher.

Source : Economic Times
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Thursday, July 13, 2017

Vijaya Bank MD gets Skoch award

Kishore Sansi, Managing Director and CEO of Vijaya Bank, has been conferred the ‘Personality of the Year’ award by Skoch Consultancy Services. The award is part of the ‘Skoch Banking and Financial Leadership’ series. Past recipients of the award include C Rangarajan, Dilip Parekh and Nandan Nilekani.

Source : Thehindubusinessline
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Fee on IMPS transactions under Rs 1000 removed by SBI

State Bank of India (SBI) on Wednesday waived charges on all money transfers of less than Rs 1,000 made through the Immediate Payment System (IMPS) channel, in a bid “to promote small ticket size transactions”. Earlier, any IMPS transfer of up to Rs 1 lakh out of an SBI bank account would attract a charge of Rs 5, in addition to service tax. Those remitting amounts between Rs 1,000 and Rs 1 lakh will continue to shell out the charge of Rs 5. The charge on transactions of over Rs 1 lakh and less than Rs 2 lakh will also remain unchanged at Rs 15. The applicable Goods and Services Tax (GST) rate will apply to all IMPS transactions of over Rs 1,000.

The reset in IMPS charges puts SBI at a disadvantage to its private sector peers. HDFC Bank, SBI’s closest rival in terms of asset-book size, earns a fee on all outgoing IMPS transactions. Account holders at the bank have to pay Rs 5 for all transfers of up to Rs 1 lakh and Rs 15 for transfers of between Rs 1 lakh and Rs 2 lakh. The charges are the same at ICICI Bank. Among other large state-owned lenders, Bank of Baroda (BoB) does not levy any charge on IMPS transactions, while Punjab National Bank (PNB) charges Rs 5 for all IMPS transactions, according to the banks’ websites.

Sources in the know said that SBI’s decision to waive charges on some IMPS transactions may have been the result of more than a nudge from the government. “We have almost been arm-twisted into doing this,” said a senior banker on condition on anonymity.

The waiver is likely to impact a sizeable chunk of IMPS users. While bank-wise data for IMPS transactions is unavailable, SBI is widely accepted to be the market leader in terms of digital transactions in general and internet banking in particular. It has a 52% market share in mobile banking, deputy managing director Manju Agarwal had told FE in March.

Like most other modes of digital payments, IMPS had seen a surge in transaction volumes amid the cash crunch arising from the government’s November 8 decision to withdraw high-value currency notes from circulation.

IMPS volumes in June added up to 65.8 million, 82% higher than the November figure of 36.2 million transactions. Transaction values for IMPS aggregated Rs 59,650 crore in June, 83.6% higher than Rs 32,480 crore in November. This puts the average IMPS transaction value at around Rs 9,065.

Source : Financial Express
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Gross NPA divergence at Rs 6,816 crore by Mar 2016: IDBI Bank

Public lender IDBI Bank’s gross NPAs by the end of March 2016 were lower than the Reserve Bank’s estimate, with a divergence of Rs 6,816.60 crore, its annual report shows. As of March 31, 2016, the bank had reported gross non- performing assets (NPAs) or bad loans to the tune of Rs 24,875.07 crore, according to the bank’s annual report for 2016-17. The Reserve Bank (RBI) had put gross bad loans on the bank’s balancesheet at Rs 31,691.67 crore by 2016 March-end, which works out to a difference of Rs 6,816.60 crore.

In case of net NPAs by this period, the divergence is of Rs 4,755.60 crore. The lender had reported net NPAs worth Rs 14,643.39 crore as against RBI’s estimate of Rs 19,398.99 crore. During 2015-16, the bank had reported a net loss of Rs 3,664.80 crore because of a surge in bad loans on its books. This led to an overall divergence in the bank’s provisioning at Rs 2,061 crore.

The annual report data further showed that the bank’s total exposure of 20 largest borrowers and customers by the end of March 2016 stood at Rs 62,329.21 crore (14.55 per cent of total advances), which further increased to Rs 63,967.81 crore (15.53 per cent) as of March 31, 2017. The total exposure to top four NPA accounts was Rs 11,576.97 crore at the end of the fiscal ended March 2016 and Rs 13,172.74 crore by March 31, 2017.

In his message to shareholders, MD and CEO Mahesh Kumar Jain said that good performance during 2016-17 was overshadowed because of deterioration in asset quality. As a consequence of higher NPAs and stressed assets, the provisioning rose, which in turn negatively impacted the bottom line of the bank and raised concerns on the capital adequacy front, he said. “These developments have led to implementation of prompt corrective action (PCA) framework on your bank by RBI. We are ensuring the RBI guidelines relating to distribution of dividend, branch expansion, capital expenditure, investment in subsidiaries are followed,” he said.

Jain said the bank has devised a comprehensive turnaround strategy that seeks to leverage its strengths and entail identification of areas for containing cost and revenue maximisation that would ensure sustainable growth and profitability. Earlier in May, IDBI Bank came under RBI’s PCA watch because of high level of bad loans on its balancesheet.

In April this year, RBI had issued a set of enabling provisions under the revised PCA framework with a clause that if the bank does not improve, it could either be merged or taken over by another bank. Under PCA, RBI has powers to curb a bank’s capacity of giving fresh loans, besides putting restrictions on dividend distribution, among others. Banks are now required to state their bad loan divergence in their financial statements if it exceeds 15 per cent. The sock of IDBI Bank traded at Rs 56.85 on the BSE, up 0.89 per cent from its previous close.

Source : Financial Express
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Initiative for merger should come from banks: Former RBI Governor C Rangarajan

Former RBI Governor C Rangarajan today said bank merger should be need-based and the initiative should come from the lenders themselves.

"Initiative for merger should come from banks themselves and there must be felt a need for it. Therefore, the world over, the larger banks are coming into cooperation," he said.

Recently, the State Bank Of India merged five associates with itself and the government is looking to consolidate few more with the objective of creating five global-sized lenders.

Five associates and the Bharatiya Mahila Bank became part of the State Bank of India (SBI) beginning April 1 this year, catapulting the country's largest lender to among the top 50 banks in the world.

On NPA resolution, he said, the clean-up exercise has to be done and some 'haircut' is inevitable.

Rangarajan was speaking to reporters here today on the sidelines of a NABARD event.

"With the haircut, loans should become performing. Some adjustment is needed. After all, we have always done one-time adjust in the past. The size of NPAs has become big so this step is required. Without finding solution to NPA, we will not be able to move forward in terms of stimulating economy and investment," he said.

Rangarajan said the NPA resolution process would take at least a year to complete.

Last month, the RBI identified 12 accounts for insolvency proceedings with each of them having over Rs 5,000 crore of outstanding loans, accounting to 25 per cent of the total NPAs of banks.

These 12 accounts would qualify for immediate reference under the Insolvency and Bankruptcy Code (IBC), the RBI said.

The banking sector is saddled with non-performing assets (NPAs) of over Rs 8 lakh crore, of which Rs 6 lakh crore is with public sector banks (PSBs).

The Reserve Bank had set up an Internal Advisory Committee (IAC), comprising a majority of its independent board members, to advise it with regard to the cases that may be considered for reference for resolution.

Source : Economic Times
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