Faced with lacklustre demand for big ticket loans, Dena Bank has changed tack to ride out the ongoing economic downturn.

The public sector bank is focusing on lending to sectors such as retail, agriculture and small and medium enterprises.

In an interview with Business Line , Chairman and Managing Director Ashwani Kumar said his bank is organising loan campaigns so that the staff go out into the field to get business.

He observed that branch managers and zonal managers should know their command area well to be able to do business. Further, persistent follow-up with borrowers usually yields results in the form of loan repayments.

Excerpts from the interview:

Loan growth focus

On the business front, now the major thrust is towards retail, priority sector and agriculture.

Big demand is not coming from the manufacturing sector. Whatever demand is coming in the infrastructure sector is mostly from the roads segment. In the case of small and medium enterprises (SMEs), the major complaint is that they are getting neglected by the banking sector or they are subsidising the large borrowers.

We have tried to correct this. Depending upon their rating, SMEs can get loan from our bank at interest rates ranging from 10.75 per cent to 13 per cent. This sector is also a focus area for us.

We have declared 15th of every month as SME day. What we are targeting is that all branches should contact SMEs on that day and each branch should sanction at least one proposal on that day.

We have 1,500 branches. To start with, even if 40-50 per cent branches start doing this, then we have 600-750 loan proposals, which is not bad.

There are two types of SMEs — one is part of a supply chain (supplying inputs to a large downstream manufacturer) and the other is one whose products directly go to consumers.

An SME making nuts and bolts and packaging material that directly go to the consumer is not impacted much. Most of the units financed by us manufacture products which are consumed locally.

The focus of our lending shifts depending upon the demand in the economy. Credit should pick up from October-November.

The purpose of having campaigns is to ensure that staff is out in the field. Chamber banking is not for branch managers and zonal heads. They have to go out to the field and do business.

When you are in the field then you know what business is happening and what is happening to the borrower.

If you go and meet the borrower, he will tell you 101 things. So, chamber banking is not for branch managers.

Managers can come back to the branch in the evening for an hour to take stock of what happened in the branch during the course of the day. This also applies to zonal managers. Unless he knows his command area, what business will the branch manager do?

Loan recovery

There are two issues when it comes to recovery. In the first case, the borrower is in genuine difficulty so we have to handhold him. In the second case, there is the borrower who is not in problem but is taking advantage of the situation, in such cases if you continuously follow up the recovery comes.

When the going is good with loan accounts, the follow-up is less. Most of the problems arise due to lack of follow-up.

For smaller accounts such as retail and SME, if you keep following up, they keep paying. If the borrower is in a cycle where his industry is under stress — he does not have power or raw material — then there is a problem.

By follow-up, I mean the frontline managers should meet the borrowers at regular intervals; SMSes must go out to the borrowers before the loan repayment due date; if the loan is overdue for more than 60 days, then somebody has to follow up. So the pressure is on borrowers who fall behind in their loan repayment schedule.

Through follow-up at least we come to know what is happening to the borrower. If you don’t follow-up then you also don’t know what is happening, especially under stress conditions. If a borrower has genuine problem, then we support him.

Since borrowers are experiencing stress, we are holding special recovery camps and offering one-time settlement schemes, mainly for small borrowers, who owe us less than Rs 2 lakh.

All accounts above Rs 10 crore come to me on regular basis and I know the recovery position on a daily basis.

Lending target revised

We are trying to moderate our lending target. We were initially planning to grow at 18-20 per cent, but given the economic environment if we are able to grow by 15-16 per cent it will be good enough. Our year-on-year loan growth is around 8 per cent, which is almost in line with the industry.

If we are able to grow in the direction where we want to go that will improve our net interest margin (NIM).

Quarter-to-quarter we are seeing improvement in NIM by five-six basis points. The bank’s NIM improved from 2.46 per cent as on March-end 2013 to 2.55 per cent as on June-end 2013.

High cost deposits and low cost advances take time to leave the balance-sheet.

Threat of SBI luring clients of rival banks with low lending rates

First thing, 100 per cent business will not go to a single bank. Everybody has different products and in the market everything sells. Somebody is comfortable with the branch location and somebody is comfortable with the banker he is dealing with.

They (SBI) have a home loan product at 9.95 per cent while we have a housing loan product at 10.25 per cent. Everybody does not go to SBI. There is no worry on that account. Though some (customer) shift is there, it is not a major challenge.

Customers are more comfortable dealing with the bank with which they have had long relationship than move over to a new bank and adjust to the new systems.

Corporate lending issues

The economy is under stress. So, we have to very closely monitor the loan accounts. One good thing is that the Finance Minister has taken steps to clear the stalled infrastructure projects. Almost Rs 7-lakh crore worth of infrastructure projects were stalled.

A good number of them has been cleared and some of them are in the pipeline. Once these projects go online in another two-three months they will impart momentum to many of the entities linked to them.

There is not much growth in the manufacturing sector. Nobody is coming for loans for expansion.

Even if they do, it is only for refinancing, that is, if they are currently paying 13.5 per cent interest they want to refinance it at 12.5 per cent.

Another concern is that there are some sectors which are under stress and coming up for restructuring. Steel is coming up restructuring. Some infrastructure projects which are stuck because of environmental or coal issues have come for restructuring.

Our loan restructuring pipeline in this quarter should be Rs 800-900 crore. Last quarter, it was Rs 900 crore.

Last year, we restructured accounts aggregating Rs 2,000 crore. Though these are challenging times, they are not gloomy times.

>ramkumar.k@thehindu.co.in

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