From a bank's perspective, savings bank is an operative account, and banks need paraphernalia to manage the portfolio. If the savings bank portfolio is higher, the impact of the deregulated savings rate regime would be high, Mr H.S. Upendra Kamath, Chairman and Managing Director, Vijaya Bank, told Business Line.
Excerpts from the interview:
How is Vijaya Bank gearing up for the deregulated savings rate regime?
We are waiting and watching. From the point of view of depositors, we are happy that today they are in a position to get improved returns on their hard-earned savings. But from the bank's point of view, we should not forget that savings bank is an operative account.
So banks need paraphernalia to manage portfolio. A crude estimate can put the operating cost between 1.5 and 2 per cent. We have to weigh options — should I continue with all freebies or should I give this benefit to those in certain segments? Should there be a geographical basis for higher interest rates?
I feel, whatever differential interest rate is to be given, to start with, it has to be given above the cut-off of Rs 1 lakh. A cursory analysis in Vijaya Bank has shown that about 70 per cent of my deposits are over Rs 1 lakh amounting to about Rs 9,500 crore.
On that, if I offer 2 per cent higher interest, then the per annum impact on that is Rs 190 crore. This is one quarter's profit for the bank. For smaller banks, it is not so simple. But irrespective of the size of the bank, if the savings bank portfolio is higher, then the impact will also be high.
How do you plan to augment your non-interest income?
Treasury has not been contributing much in the first and second quarters. The only way I can augment this is by marketing third-party products — life and non-life insurance. We are extending the marketing of life products to 20 major centres across the country by December 31. We are also beginning marketing of mutual funds.
The second thing is, we are canvassing more and more export advances as these bring both treasury and fee-based incomes.
The third area is, we are slowly but gradually moving towards working capital limits. Today we are all focusing on term loans — for infrastructure, housing, industries, etc. We are trying to get cash credit, overdraft, bank guarantee and LC (letter of credit) relationships. These will bring in some amount of fee-based income.
Fourth, we are broad-basing borrowing customers. What happens in public sector banks is that in the anxiety to grow the balance-sheet, rather than widening, you are deepening. You are not bringing new customers.
For one PSU or one AAA-rated company, if today, you have an exposure of Rs 200 crore, in 12 months' time it becomes Rs 1,200 crore. These large corporates don't give you any fee-based income. There are hardly any processing charges, hardly any upfront fee. So we are trying to rebalance that portfolio which, without any great effort, will bring in higher fee.
Also, we have moved our application for increasing the number of branches nominated for both direct and indirect tax collections. But we have not received approvals so far. I get some amount of fees per collection. These efforts are however small drops in the ocean. They can make a change only over a period of time.
What kind of opportunities do mid-corporates provide?
It is a known fact that mid-corporates and small borrowers offer better yield to the bank. Large corporates have greater bargaining power and their ability to get concessions from bank is really high.
This is because they lead to bulk advances and have the potential to help banks grow their balance-sheets. Whatever interest concessions the system makes available to well managed and better-rated corporates, have to be made good by capturing other allied businesses. Fee-based business such as treasury, forex, remittances, payroll accounts and offering third-party products will bring better yields.
That is not the case with mid-corporates. For mid-corporates and small and medium units, the interest spreads are better and the ability to capture all other businesses is also high. And, therefore, there tends to be a rebalancing of portfolio depending on what your priorities are.
At our bank, the growing emphasis is on retail, mid-corps and SMEs. This is provided in our business theme for the current year itself, which is the year of retail.
What is your next step on the technology front?
Business analytics is something which all of us are talking about. But we are currently in a situation where a lot of extra costs are to be met and so IT spend is optional. Core banking is something we have already achieved. MIS also, we are almost there.
Though analytics is important over the long term, it need not be brought in immediately. IT progression will happen. But, as of now, we will improve upon things in CBS. And, of course, increasing the ATM population is something we have committed to. I would like to achieve a branch versus ATM ratio of 1:1. So we will do that.
Do banks need to expand their product offerings to get more household savings into the banking sector?
With the deposit structure that is there today and the restrictions in yield enhancements, banks are not well placed to do that. But one thing that we can do is perhaps wealth management. That also is not discretionary.
With restrictive regulations, we do not have great ability to attract household savings. Hence, a portion of that will definitely go elsewhere. If we are permitted to launch gold deposit schemes, we perhaps can attract more savings.
This was tried once in the past, but did not pick up, because gold in the Indian household is not fully accounted for. So it will not come to the formal channels. Hence there are challenges.
Savings bank is an operative account. So banks need paraphernalia to manage the portfolio. A crude estimate can put the operating cost between 1.5 and 2 per cent.
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