expects the bank to meet its credit growth target of around 25 per cent this year. The bank will, however, scale down its deposit growth target to 17-18 per cent and instead raise close to Rs 400 crore of tier-II bonds to fund its credit growth, says Ramakrishnan in an interview with Shriya Bubna. Excerpts:
Is Andhra Bank on course to meet its business growth targets for the year?
The credit offtake has been growing at a sluggish pace in the first six months. There will be an impact on profitability to the extent that there is no benefit from interest income.
However, we have a lot of undrawn limits. It is only a matter of time before some bargaining happens for earning interest income without compromising on profitability.
A credit growth of 24-25 per cent should be achieveable. We had projected a deposit growth rate of 22 per cent. The deposit growth should be around 17-18 per cent, given the sluggish credit growth.
With the bank's net interest margin under pressure, what steps are you taking to protect margins?
The problem is because the cost of depsoits went up much more than our yield on advances. The cost of deposits is as high as 6.3 per cent, putting margins under strain.
In the last quarter of the last year, the proportion of bulk deposits went up. At the end of March 2007, bulk deposits were at 35-36 per cent of our total deposits, raised at an average cost of 9.4 per cent.
A couple of years ago, we used to raise bulk deposits at 6.7 per cent. We have brought down the bulk deposits to 24 per cent of our total deposits already. With this, our cost of deposits is also coming down.
How much bulk deposits do you have now?
We have Rs 9,200 crore of bulk deposits. We would want to keep it at this level. We still get offers from corporates to pick up Rs 500-1,000 crore of deposits. You have to see at what rate you are raising deposits and whether there is an asset that will give you a return.
On the other hand, retail deposits have also grown. In one month, we raised Rs 2,000 crore of retail deposits under the 9.75 per cent and other retail deposit schemes.
Do you see banks pricing loans aggressively to boost credit growth?
On the pricing front, there is no problem. The rates have stabilised. Here and there, there could be concessions. This would not affect margins substantially. The interest rate could be lower by 25-50 basis points.
What are your plans to augment the fee-based income?
We have financial service centres, where we have placed our campus recruitment marketing officers. Their only job is to meet non-customers, mainly concentrating on marketing insurance products. We want to move all marketing officers in branches to these centres.
In the first six months, our fee and commission income was Rs 50 crore, while in the whole of the last year, it was Rs 22 crore. We have set a target of Rs 90 crore for this year.
Do you still intend to go ahead with Bank of Baroda to set up a Malaysian subsidiary after the third partner, Punjab National Bank, is reported to have deferred its plan for the moment?
The Malaysian subsidiary is very much on. At a particular time, a bank's priorities may change. Andhra Bank and Bank of Baroda will scout for another bank. There is utmost urgency and viability for the venture.
What are your capital-raising plans for the year?
Given the credit expansion target for the year, we want to raise about Rs 400 crore through tier-II bonds.
Right now, at a coupon rate of 9.5-9.75 per cent, the rates are fine. This gives you a multiple of nine for lending. It is either this or then we raise bulk deposits, which we do not want to.
Do you see capital as a constraint, considering that the government holding in your bank is close to the minimum floor of 51 per cent?
We have room to raise Rs 3,600 crore of capital through tier-II bonds, perpetual bonds and foreign currency convertible bonds. This should see us through till 2010. We will have to see after that.
