Upendra Kamath, as Chairman and Managing Director, has steered Vijaya Bank through a difficult two years. During this period, he focussed mainly on rebalancing the portfolio — both on the assets and liabilities sides. Vijaya Bank was excessively reliant on bulk business — whether on the corporate lending side or on deposits.

The need to change the mindset of officials to focus more on the retail side consumed much of his energy during his first year in this office. Kamath has achieved considerable success in bringing the important financial parameter within a safe range, although he says this is a continuing battle and makes clear that it is not yet won.

He spoke to Business Line on these and other banking issues at his office in Bangalore. Excerpts:

Why have you not cut your interest rates although the RBI has cut its repo rate thrice over the last year?

When the RBI cuts its repo rate (the rate at which banks borrow from RBI against the pledge of surplus government securities), it affects us very little. The portion of such borrowings in my total borrowings is abysmally small.

Almost 95 per cent of my resources are from deposits. If the RBI tweaks the repo rate, there is hardly any cost implication, because my costs are not going to go down dramatically. I don’t think you can expect banks to react in a manner similar to the RBI.

Repo rate cut is a signal from the RBI, and banks should look into it and explore possibilities of transmission. But the base rate decision is a function of cost. If cost undergoes a change, yes, there is a case for transmission.

Also, if the consumer price index is 9.31 per cent and if I quote 9 per cent rate for deposits, are the savers getting anything? Can I still mobilise resources?

We have seen how people were diverting their income to gold and real estate. That is why our deposit growth has lagged behind.

My ability to cut rates is limited. We have to give savers a positive real interest rate that is between 100 and 200 basis points higher than the inflation rate to persuade them to keep money in the bank.

Any unilateral cut will lead to loss of income for the bank, and, in the current scenario, where profits are under pressure, one needs to take a call on whether we can afford to do this.

Has the non-performing assets problem peaked?

The velocity with which they went up has come down now. This is reflected in the numbers coming down a bit for the industry as a whole. But is the worst behind us? The answer is, no. As long as the economy is not doing well, there is always the risk of delinquencies coming up to the surface with a lag. We need to be cautious.

The third and fourth quarters of last fiscal were better than the first two quarters. We brought down our gross NPA from 2.95 per cent to 2.17 per cent and net NPA from 1.7 per cent to 1.3 per cent. We also did some substantial cash recoveries as well as prudential write-offs in the small-loan category.

How is credit growth likely to be this year?

I expect we will grow at around 18 per cent this fiscal. I have set a business target of Rs 2.10-lakh crore to be achieved by the fiscal year-end. We were at Rs 1.67-lakh crore in March 2013, so we plan to add Rs 43,000 crore of business during the year. It is difficult but not impossible.

Where will this growth

come from?

All of us have pipeline sanctions that should provide us incremental business of 7-8 per cent. Projects that take 3-5 years for execution will draw down funds.

We have attempted to rebalance our credit portfolio and reduce reliance on corporate credit. We have focussed more on the retail, agriculture and MSME (micro, small and medium enterprise) segments.

So, over the last year, retail has grown 20 per cent, MSME at about 27 per cent, and agriculture advances, 31 per cent. These have become our main growth drivers.

Apart from these, we saw growth in road projects, renewable energy, engineering, auto components, NBFCs and real estate last year. This trend has continued so far in this year too.

Have you been able to bring down your bulk deposits component substantially?

We have been only partially successful. This is a bank that was over-reliant on bulk business. On the resources side, our bulk deposits were at 46 per cent when I took charge. I spent the first 6-9 months trying to change the mindset towards retail.

In the first year, I did not succeed. The level of bulk deposits went up a bit to 47 per cent. But last year, we took a decision to change this system. And because everybody was convinced, the level of involvement in this makeover was fairly high.

Our CASA (current account and savings accounts) grew at 11.5 per cent compared to a decline in growth in the previous fiscal. Our retail term deposits started growing well.

The cumulative result was that we brought our bulk deposit from 47 per cent to nearly 21 per cent of deposits. Even that is not enough. Banks should ideally have only 10 per cent in bulk deposits.

That is why I qualified myself by saying we have only partially succeeded. The battle is not yet over. It continues.

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