IDBI Bank has embarked upon a three-pronged strategy to improve its profitability — ramp up retail franchise, rebalance loan portfolio and speed up recoveries from bad loans.
The public sector bank plans to expand its branch and ATM networks by over 70 per cent and 150 per cent, respectively, in three years to attract retail business — both deposits and loans.
By March-end 2015, the bank is looking to grow its branch network to 2,000 from 1,159 now. It also plans to add 3,057 ATMs to its network, taking the total number of these cash-vending machines to 5,000.
In an interview to
“In commercial banking, you need to have a large network of branches. Our total number of branches today is 1,159, which doesn’t rank well with other public sector banks.”
Because of the limited branch network, IDBI Bank’s retail and priority sector loans portfolio, and low-cost deposits (Current Account and Savings Account or CASA) are substantially lower those of other PSBs, he pointed out.
Retail loans (including housing, vehicle and personal) and priority sector loans (including agriculture and micro and small enterprises) accounted for about 18 per cent and 8 per cent, respectively, of the bank’s total loan portfolio of Rs 1,78,945 crore as on June-end 2013. Corporate and infrastructure loans comprised about 74 per cent of the total loan portfolio.
Of the total deposits of Rs 1,83,277 crore, CASA deposits accounted for 21 per cent, and term deposits (including wholesale deposits), the balance.
Loan portfolio
Raghavan said branch expansion will help his bank rebalance its loan portfolio and mobilise CASA deposits.
Over the next three years, he expects the loan portfolio to be equally divided between corporate and infrastructure lending on the one hand, and retail and priority sector lending on the other.
“The niche in the development finance segment is perhaps the one that differentiates us from the others in the banking industry.
“So, the loan rebalancing will not be done by contracting our wholesale (infrastructure and corporate) loan book. It is going to be done by growing our retail and priority sector loan book faster,” said the IDBI Bank chief.
Due to limited branch network, infrastructure and corporate lending has to be supported with wholesale deposits. So, a major portion of the bank’s deposits is in the form of wholesale deposits, which has cost implications.
“While all other banks’ cost of funds is about 5.50 per cent, our cost of funds is 8.02 per cent,” said Raghavan.
However, with branch network expansion, the bank expects an improvement in the proportion of low-cost CASA deposits in its total deposit base, which will help bring down the cost of funds.
Stressed assets
IDBI has launched an “Own Your NPA” campaign to facilitate faster recovery of non-performing assets (NPAs). The campaign, started on August 1, will run till December 31, 2013.
As part of this campaign, managers — at the zonal, regional and branch levels — have been tasked with making recoveries from the top 20 NPA accounts in their portfolios. Raghavan said “each zonal, regional and branch manager should personally go and meet the customers. Hitherto, the focus (on recovery) was missing. Now, the focus has returned.
“The top 20 accounts are getting attacked time and again. It is not 200 accounts, it is only 20 accounts. The top 20 accounts contribute to at least 30-40 per cent of the NPAs.”
The total number of cases identified under the campaign is 1,522 with an aggregate principal outstanding of Rs 5,805 crore.
Through the campaign, about 73 per cent of the bank’s total NPAs of Rs 7,959 crore are being given special attention to achieve considerable reduction in it during the current financial year.
Raghavan observed that rebalancing the loan and deposit portfolio and growing the business will contribute to improvement in the bank’s bottom line.
“I want to reach an ROA (return on assets) of 1 per cent in two years. All other (business) parameters will be tuned towards this,” he said.
ROA is calculated by dividing a bank’s net profit by its assets. It is an indicator of how efficient a bank is in generating income from its assets. As on June-end 2013, IDBI Bank’s ROA stood at 0.41 per cent.