Bank of Baroda to rebalance loan portfolio, exercise caution in lending

Rebalancing the loan portfolio, exercising caution in lending, and grooming the middle management to take up higher responsibilities are the main focus of Bank of Baroda Chairman and Managing Director S.S. Mundra.

Mundra, who took charge of BoB in January, has hit the ground running, placing premium on continuity in the bank but remaining contemporary at the same time. In an interaction with Business Line, Mundra, who started his career as a probationary officer in Bank of Baroda in 1977, says that given the pressure on asset quality (bad loans increased from Rs 4,465 crore as of March-end 2012 to Rs 7,321 crore as of December-end 2013), his bank is on a mission to improve the same. Excerpts from the interaction:

Premium on continuity

I have a relatively short tenure (of 19 months at the helm of Bank of Baroda). As I’m from this bank I hit the ground running. My bank has been doing consistently well over a period of time. When it comes to all key performance parameters, whether it is the business, gross non-performing assets (NPA), net NPA, net interest margin and profitability, our bank stands head and shoulders above the peer group.

Of course, when there is so much stress in the economy, you cannot totally remain unaffected. It is bound to have some impact on you.

But my personal philosophy is that with all this background, I would like to put a lot of premium on continuity. If you have not been performing well consistently then there is a reason for you to consider changes (in the functioning of the organisation). But when the bank has been doing quiet well then there is no need for change. I don’t believe in change for the sake of change. My basic underlying philosophy is premium on continuity but to remain contemporary. So, slight course correction is needed, and some re-balancing between the portfolios is needed, these need to be undertaken.

Portfolio rebalancing

Our bank has a fairly good balance between domestic business (accounts for 70 per cent of the global business — deposits plus advances — of Rs 7,14,051 crore as at December-end 2012) and overseas business (30 per cent of global business); our overseas business contributes 25 per cent to our bottomline.

In the domestic business (of Rs 4,96,595 crore), we have a fairly good presence in all the four segments — corporate banking, mid- and small and medium enterprises (SME), retail and agriculture. But as of today, our domestic loan portfolio (of Rs 2,01,208 crore) is slightly leaning towards the corporate segment.

In the backdrop of the current economic situation and from the perspective of spreading the risk better and deriving wholesome value from our loan portfolio, I feel that our loan portfolio composition, in percentage terms, should slightly move in favour of retail, SME and agriculture.

This doesn’t mean that corporate loans will not happen (they will continue to grow), but if I have to bring some course correction in terms of percentage it means that retail, SME and agriculture loans have to grow at a rate slightly higher than corporate loans.

Currently, corporate credit constitutes about 45 per cent of the overall loan portfolio; agriculture 15-16 per cent; retail 14-15 per cent; and SME 22-23 per cent. If there is a differentiated growth between corporate credit and other loan segments, rebalancing will gradually happen.

As of today, if I am looking at a credit growth of, let’s say, 18 per cent or so in FY14, my endeavour would be for retail, SME and agriculture portfolio to grow at 22 per cent plus. This would automatically bring a little bit of re-balancing.

Caution, the watchword

When it comes to lending, caution is being exercised in the sectors (like infrastructure) where policy issues are yet to be resolved. Earlier, it was assumed that these things (delays in getting statutory approvals) are normal but they (approvals) will be in place and you (banks) need not wait for them. But today, having seen that they (approvals) are not always coming on time, one would like to be very clear that everything is in place beforehand. You can’t start committing funds in anticipation of a few things happening. This we have learnt from experience and hence the caution.

Focus areas

International business will continue to grow. But within the international business, as of today, almost 50 per cent of the credit is predominantly in the form of short-term credit. While this is good, the margins are relatively lower.

As we enter into the next fiscal, with more signs of stability showing up in the domestic as well as global economy, I would like to slightly change the composition of international credit. I may enhance the percentage of our long-term credit to some extent while not growing the overall size very aggressively. A little bit of shift towards long-term credit will give us better profitability from the international operations.

Another important requirement and initiative is on the Human Resources (HR) front.

In the coming two-three years, HR is going to be a big issue for public sector banks. By 2016-17, in the senior three layers of management — General Manager, Deputy General Manager and Assistant General Manager — I think between 50 to 80 per cent would be superannuating.

So, it is very important that you keep your middle management strong, identify the people, and groom them so that they are ready to take up higher responsibilities. This is to ensure that there is no management vacuum in the organisation. So, HR would remain a focus area.

The other priority is the asset quality. I have asked our bank to be on mission mode so that our asset quality, our recovery processes, our early warning signal detection processes are all further streamlined and become more efficient so that you don’t start correcting a situation when it is late. Rather do it in good time. In the December quarter, we have seen pressure on asset quality. It had already started becoming visible in June to some extent and in September to some extent. So, when we see that there is a trend (rising bad loans), I think it is wiser for any management to spot the trend and start action.

 

NPAs and restructured assets

Of late, the non-performing assets (NPAs) are more visible in the corporate segment. Obviously, if there is stress in the economy, SMEs would be affected. So, in the SME segment, the NPAs keep on coming. The remaining NPAs are from the mid-corporate segment. Retail is not seeing much incremental NPAs.

Restructuring is mostly from the large corporate and to some extent from the mid-corporate segments.

NPAs and restructuring are not sector-specific. Restructuring is now more account-specific.

The time has come in our system to start differentiating between NPA on account of financial reasons and NPA on account of policy and technical reasons. As I see, some of the reasons that will lead to more restructuring will be due to policy bottlenecks or delays in the commercial operations date.

So, if these things are corrected — lot of policy measures have already been announced — then probably things will start looking up. But as I indicated during our Q3 results, I still see at least a couple of quarters of pain in terms of NPAs and restructuring.

kram@thehindu.co.in

Source: thehindubusinessline

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HDFC Bank to charge customers for InstaAlert SMSes

The country’s second largest private sector lender HDFC Bank will begin charging its customers from tomorrow for its InstaAlert SMS service, under which the bank provides real-time alerts on account activities.

The bank’s InstaAlerts service allows customers to keep a track of various payments and receipts, get reminders for timely payment of utility bills and receive intimations when balance falls below a pre-specified limit, among other account activities.

“Effective April 1, 2013, customers registered for InstaAlerts through ‘SMS’ will be charged,” the bank said in a notification. However, InstaAlerts delivered through Emails would remain free.

Customers registered for InstaAlert service with ‘SMS’ as the delivery channel will be charged Rs 15 per quarter in case of salary or savings accounts, while the charge would be Rs 25 per quarter for Current Account customers.

Customers usually register InstaAlert service for alerts like debit transactions greater than a certain amount, credit in account greater than a specified sum, account balance below the minimum funds and weekly account balance. The alerts can be either event-based or frequency based.

The bank said that debit/credit card transaction alerts sent as per regulatory guidelines and NetBanking transaction alerts are not part of InstaAlert Service. Customers who are not registered for InstaAlert service will continue to get these alerts free of charge, it added.

Both resident and non-resident Indian customers are eligible for InstaAlert service on their savings or current accounts with HDFC Bank.


Source: thehindubusinessline

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Rs 90 lakh worth ICICI Prudential customer database stolen; police probe on

Fraudsters have managed to steal customer database from ICICI Prudential causing a “loss” of over Rs 90 lakh after some policy holders either surrendered or discontinued policies believing the cheats.

Delhi Police’s Economic Offences Wing have launched a probe into it following the registration of a case under sections of the IPC and Information Technology Act last week on a complaint filed by ICICI Prudential on March 3, a senior police official said.

The fraudsters made hundreds of calls to policy holders after managing to get hold of the customer database, inducing them to put money in certain accounts to avail bonus and providing wrong information about their policies among other acts.

“It appears that due to malicious practice of some unscrupulous people, ICICI Prudential has received complaints with regard to calls made allegedly on behalf of the company giving false promises of bonus, scholarship etc to genuine policy holders by tele-calling and inducing them to buy new policies of different agencies,” the official said. The tele-callers have stolen the data and misused it, he said.

According to the complaint filed by ICICI Prudential, certain people have been attempting to cheat its customers by impersonating as its representatives after stealing their details, including their policy details, from the database.

“... We received several complaints from our customers complaining about the phone calls being received from people posing employees of the company and as officials of IRDA (Insurance Regulatory and Development Authority) making various promises inducing them to do certain acts which were prejudicial for the interests of the customers.

“Till date, we have received a total of 712 complaints from our regular customers against such fake/spurious calls.

“We may point out that there is a possibility that a large number of customers might not have filed such complaints,” the complaint said.

ICICI Prudential also claimed that “eight insurance policies have been discontinued and 48 policies have been surrendered by our customers, resulting into a loss of Rs 90,93,188 to the company” due to these illegal actions though it was able to satisfy most of its customers and averted losses that could have incurred.


Source: thehindubusinessline

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IRDA introduces credit rating norm for selecting foreign reinsurers

The Insurance Regulatory and Development Authority (IRDA) has tightened the norms for reinsurers. According to the IRDA (General Insurance – Reinsurance) Regulations 2013, notified in the Gazette recently, tough norms have been put in place for selecting reinsurers outside India.

In the reinsurance business, multiple insurance companies share the risk by purchasing insurance policies from other insurers to limit the total loss the original insurer would face in the case of a disaster.

According to the new IRDA norms, insurers should place their reinsurance business outside India with only those insurers who have a credit rating of at least “BBB” with Standard & Poor’s, or an equivalent rating by any other international agency for the past five years.

The past claims performance of the reinsurers should also be considered while accepting their participation in the reinsurance programme.

The domestic pool for reinsurance surpluses in fire, marine hull and other classes should be organised in consultation with all insurers on “fair” ground for retention of business with India in prescribed ratios, IRDA said.

The reinsurance programmes would commence from the beginning of every financial year. The details would have to be submitted to the regulator at least 45 days in advance.

One of the objectives of reinsurance programme, according to the regulator, is to maximise retention (the portion of risk which an insurer assumes for its own account).

The net retention of non-life insurers increased to 91.84 per cent in 2011-12 from 88.24 per cent in the previous year.

There are many reasons for reforms in the reinsurance business. IRDA found it difficult to track the audit trail of many transactions with regard to reinsurance placements and coinsurance.

Further, there has been a demand from the general insurers that a level playing field be created for foreign insurance companies and Indian reinsurers because, so far, there have been no restrictions in place for the foreign firms. The regulator also plans to introduce a hi-tech electronic platform for transactions and settlement.

naga.gunturi@thehindu.co.in


Source: thehindubusinessline

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Syndicate Bank to raise $500 m via MTN bond issue

Syndicate Bank said it would raise $500 million to fund its London operations through the medium term note (MTN) bond issue.

“The bank has board approval for a $500 million MTN bond issue. It could hit the overseas market between May and December this year, depending on the demand for credit,” Chairman and Managing Director of Syndicate Bank, M G Sanghvi said here.

The funds raised would be utilised for expanding the credit operations of the bank’s London branch, he said.

A medium-term note (MTN) is a debt security that usually matures in 5-10 years.

The bank’s London branch had reported total business of around Rs 43,000 crore by March 2013, as per provisional estimates.

“As per provisional estimates, the branch’s total advances are Rs 25,134 crore, while deposits are of Rs 18,301 crore,” Sanghvi said.

The PSU bank, had raised $500 million last year (2012), the second tranche under bank’s MTN programme of $1 billion. An equal sum was raised by the bank in 2011 through the same bond route.

Meanwhile, he said that the bank is likely to close this year with a total business of Rs 3.30 lakh crore, including global deposits of over Rs 1.64 lakh crore and global advances of over Rs 1.45 lakh crore by March 2013.

The bank’s net NPA in the first nine months (up to December 2012) of the fiscal marginally declined to 0.85 per cent from 0.86 per cent levels, while its capital adequacy ratio stood below 12 per cent.

The bank targeting to be Basel-III guidelines complaint by 2018, has sought capital infusion of Rs 1,400 crore from the Union Government.

“We had applied for capital infusion to the government last year, and expect some funds infusion this year as provision has been made in the Union budget,” Sanghvi said.

Rating agency, Moody had downgraded the bank reportedly on account of slippages, but had stated that the outlook was stable.

The global local currency deposit rating of Syndicate bank was lowered to Baa3/P-3 from Baa2/P-2.

“I have spoken to Moody on the downgrade, in the backdrop of our better quarter-to-quarter performance, and they have assured to (take a) re-look at the rating,” Sanghvi said.


Source: thehindubusinessline

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