'Our target is Rs 1 lakh cr business by '09 business

BANKER SPEAKS: Prakash Mallya

in an interview that the very fact that the ventures were adding ¿peanuts¿ to the bank's income prompted the decision.

How do you plan to expand your network to become a pan-Indian bank?

Out of our 987 branches, 40-42 per cent are in the south. However, the major portion of our business comes from Delhi and Mumbai. You cannot say that a pan-India look is absent, but we are not present in a major way. Would you be interested in acquiring a bank with a strong presence in the north?

It is a tall order in the sense that it is not going to be easy. But I would definitely look at a bank which has a strong presence in the north because I do not have a strong presence there. I do not have any particular bank in mind.

The banks have hardly seen a growth in their loan books inspite of being aleady half-way into the year. Is that a worry?

It is a worry for all banks that credit has not picked up. I have a feeling that people know that interest rates are not going to harden further as far as the lending rates are concerned. Banks have brought down the deposit rates to maintain the margin and spread.

In the banking industry, developments take place in the second half of the year. We are above the March level (in terms of outstanding loans portfolio).

Why have you taken a call to exit all your joint ventures with Punjab National Bank and Principal Group?

The fact that the joint ventures were not adding to the income as desired, led our board to take this decision. I am not closing myself to the insurance business, but looking at other options.

These include floating a subsidiary, joining with another bank, getting another foreign model or going for a corporate agency model. Things should be clear in a month's time. I would prefer an agency model, as things stand now.

PNB is also thinking of coming out of the joint venture, who knows I may join PNB.

What exactly was the problem with the ventures?

I come from Syndicate Bank and Canara Bank and have seen the kind of income generated from this business. I was not at all happy as it was hardly Rs 1 crore here. In December 2006, Irda imposed restrictions. Since PNB Principal is a broking company, it decided to act as a sub-broker. We cannot do the same.

For the life insurance venture, it said that Berger should withdraw from the venture. Proper due diligence was not done on the joint venture. We have lost 2-3 years already. Since the insurance market is huge, a bank such as ours should not play a 5-day test match or 1 day international, but a Twenty 20.

What are the other new business areas that you are looking at?

Some discussions are in progress for online broking

Is capital a constraint in expanding your business?

Since the government's holding is at 53.87 or so, I do not have much headroom. Our capital adequacy ratio (CAR) is at 11.70 per cent. With the implementation of Basel II by March 2009, our CAR will come down by 40 basis points.

But I can raise Rs 1,600 crore by way of upper and lower tier II bonds and perpetual bonds. There will be accrued profits as well. I have done a valuation of our fixed assets after 12 years, and they are valued at Rs 500 crore. We do not have any problems till we cross Rs 1 lakh crore business in 2009.

Are you looking at an overseas presence?

We have applied for opening representative offices in China, Hong Kong and Dubai. But the Reserve Bank of India (RBI) has yet to give the clearances.

Is the rise in non-performing assets (NPAs) a worry?

Last year, there was an accretion of Rs 398 crores to our NPAs. This was mainly because of retail loans given in 2004-05. The retail lending officers went reckless because they had to increase the retail lending. However, NPAs worth Rs 270 crore were below the Rs 25 lakh. It is possible to recover these loans as they are not hard-core NPAs.

What are your business targets?

We are aiming at a business mix of Rs 76,000 crore with Rs 31,000 crore of advances in 2007-08. I may even go upto Rs 80,000 crore, in which case, it will be easy to cross 1,00,000 crore by 2009. Our aim is to cross Rs 450 crore in net profit by March 2008.