High fee income and lending to small and medium enterprises (SMEs) are going to be the focus areas for Allahabad Bank in the near future. The bank is also ramping up presence in the South. Chairman and Managing Director J P Dua shares his thoughts with Debasis Mohapatra on the bank’s future and the industry’s concerns. Edited excerpts:
What are your immediate priorities?
Higher fee-based income, along with continued emphasis on the SME sector, is our immediate priority. In the SME vertical, we already have around 146 thrust branches for MSMEs. We are working aggressively in all the SME clusters of the country. Also, we are planning to increase our branch strength in South India to push the share of current account and savings account (CASA) in the overall deposit portfolio.
What is your outlook for CASA? Also, how will the new branches help you with the same?
Our CASA deposits stood at 34.5 per at September-end. With the new branches, they should be around 35 per cent by the end of this financial year. To increase our low-cost deposit base, we are trying to push CASA deposits by increasing our branch strength. Of the 1.5 million new accounts we were targeting, nine lakh accounts had been opened by November. Also, we are looking at opening 150-odd branches in the next financial year, subject to the central bank’s approval. Most of these will come up in South India and Gujarat, where the state gross domestic product is higher than the national average.
However, I can’t give you a specific figure for the next year.
At present, deposit rates are high, in addition to higher cost of funds. Will it impact your net interest margins (NIMs) this quarter?
Yes, the banking industry as a whole is facing this situation. So, NIM should be impacted. I had an outlook of three per cent NIM for FY11. As our September quarter NIM stood at 3.4 per cent, we should end this financial year with our earlier estimate of three per cent, despite the current margin squeeze.
Will treasury income be impacted due to the prevailing liquidity crunch?
Yes, treasury income will dip across the sector due to hardening of rates. There was literally no contribution of treasury to our September quarter earnings, but we still registered a 20 per cent rise in profit. Thus, owing to our dependence on core earnings, a lower treasury income will have no impact on our profitability.
Any update on your fund-raising plans through Tier-II bonds?
We are planning to raise Rs 1,400 crore through Tier-II bonds in the last quarter and have already got the board’s approval. We also have a headroom to raise around Rs 2,600 crore. As part of the recapitalisation programme, we have asked the government for Rs 1,000 crore and expect the same by the end of this financial year. Otherwise, the capital adequacy ratio, which stands at 13 per cent, is at a comfortable level.
Recently, RBI raised concerns regarding an asset-liability mismatch due to higher exposure to the infrastructure sector. Is this a matter of concern?
The central bank raised some concerns regarding higher infrastructure exposure. As far as our bank is concerned, infrastructure lending is at 19 per cent of the total advances and the upper limit of exposure stands at 30 per cent. We have also entered into an agreement with IIFCL for take-out financing for infra loans. If need be, we will consider a deal with it.