It may not be that great a new year for Lakshmi Vilas Bank. At least that's the impression one gets after talking to the bank's Managing Director and Chief Executive, Mr P. R. Somasundaram.
The first half of this fiscal, he concedes, was good. However, while expressing satisfaction over the bank's business growth, profitability, branch and ATM expansion initiatives during the first half, Mr Somasundram did not sound very upbeat about the remaining half of the current fiscal.
“Growth will be there, but it will have to be looked at more realistically. It may not be in the 30 per cent range for the full year,” he said.
The Karur-headquartered bank had registered a 37 per cent growth in business during the first six months of the current fiscal, with deposits growing at a higher rate compared to advances.
“It's a typical situation,” observed the LVB Chief, while conceding to the pressure the bank faced on the Net Interest Margin front. “But as a bank, we have invested on our network, hired around 400 people after a long time and not stinted on our critical investments. We will have 500 ATMs by mid-January (up from 435 at present), and open another 17 branches in the next couple of weeks. Our present branch network stands at 275.”
There is no immediate or serious concern over NPAs (non-performing assest), but the present situation poses a lot of uncertainties, he continued.
Excerpts from the interview:
What are your expansion plans?
We will be raising Tier-II capital shortly. It would be anywhere between Rs 100 crore and Rs 200 crore. Tier-I plans will have to wait for better times. We are looking at a couple of investment opportunities. Going forward, we will continue to expand our network, hire some key people, but will be more cautious and sensible.
What makes you say so?
Currently, all sectors are under pressure. Thankfully, we are not exposed to any particular sector. Yet, I think the last quarter would be heavily dependent on how the macro factors impact the clients' balance-sheet.
For the bank, I think it's a question of showing what we wanted to do in terms of investments. Profit growth has been healthy; in fact, we could have done better. We have initiated some changes in our process. The second half will give us time to look internal. Anyway, one cannot beat the market by a mile in this environment.
Your expectations about the last quarter.
It is going to be critical, not so much for the bank per se , but for the clients' balance-sheet. We have not gone through this kind of rupee depreciation or volatility in the last very many years.
The year 2008 was bad, but it was more for the capital market rather than the banking sector. Banks were doing well then. Now, the entire scenario looks scary; inflation and other macro factors are affecting us. This could be a test for all of us in managing uncertainties. All banks have fared well until now, but the year ahead will tell what is going to happen.
Do you foresee huge inflow of NRI deposits due to depreciation of the rupee?
Yes, we have only this week hiked the interest rates on NRE deposits and plan to be quite aggressive on mopping up such deposits. The NRE deposit base is very small, so it would help. The bank's NIM is anyway down and, in my opinion, this is not the time to set the NIM right. There should be adequate liquidity and we are comfortable on this front.
Have you revised your growth targets?
No, I have always maintained 20 per cent growth in advances, and we have shown 37 per cent year-on-year growth till now. But I may not be able to hold on to this growth in the second half. I am confident of achieving an overall growth of 20-25 per cent.
Which according to you is more important — achieving growth targets or quality of assets?
Obviously the latter — consistent profitable growth matters a lot more than numbers.
What are your hiring and expansion plans?
We have hired 400-plus people after a long time. We have also hired a small team for PoS business. We have just put over 450 PoS machines in the market. Our plan is to take it to 1000 by March; we are not looking at this as an independent stream of business.
Again, we are a relationship-led bank and not a product-driven one. Our product rollouts are more to retain and acquire customers rather than grow the product itself as an independent stream. The hit rates are good. Our idea is to build CASA.
What about customer acquisition?
It has slowed in the last few months, but because of our term deposits, we have walk-in customers. We are opening around 500-600 term deposit accounts every day. We are looking to enhance this significantly. The new recruits at the branch level will do feet-on-street for enhancing our customer base and these 250-odd people are all cost to company.