R M Malla, the newly-appointed IDBI chairman and managing director, has had hectic two weeks. First, he got the Rs 3,119-crore capital infusion from the government. Then, the bank decided to merge its housing-finance subsidiary with itself. And, now it is raising around $500 million through an overseas bond issue. Malla is no stranger to the entity. He had worked earlier in the development financial institution (DFI), before its conversion into a bank. He has returned to IDBI Bank after heading IFCI and Small Industries Development Bank of India. In an interview with Sidhartha, Malla discusses his plans for IDBI Bank. Edited excerpts:
So, it’s a homecoming for you, though circumstances have changed now.
Yes, it is a homecoming of sorts. Thanks to the government that I am back at IDBI, where I have spent close to 20 years at the mid-management level. During the last few years, IDBI successfully converted into a universal bank. Today, we have business of around Rs 3 lakh crore. The bank has been growing at a fast pace over the last few years. Despite that, we have remained compliant with the norms on the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR) that stands at around 28 per cent today.
But, IDBI Bank, which was one of the key players in the financial sector along with State Bank of India and UTI, is no longer in the top league. What are you doing to ensure that it regains its position?
When you talk of DFIs converting into banks, a few others converted quickly. We converted in 2004-05. If you compare the three organisations you mentioned, we may not have grown so fast in terms of the balance sheet size, but we have grown fast in areas we concentrated on. We also managed to build a financial conglomerate that has presence across segments – mutual funds and insurance. We have a primary dealership and IDBI Capital Markets that is involved in mergers and acquisitions and issue management. We have a home finance arm, which we acquired from the Tatas, and plan to merge it with the bank. So, we are poised to grow from here.
Was the merger of the home finance company done under pressure from the government, since you were earlier planning to sell it?
There was no pressure from anyone. It was done after it was thought through carefully and there was consensus on the issue.
Has IDBI Bank managed to meet all the targets that are prescribed for Indian banks?
The only area which needs some relaxation is agriculture lending. We are yet to achieve targets in that segment, though the special dispensation is coming to an end. Since six per cent of our portfolio comprises loans to the sector, we will seek an additional one-year window to comply with the Reserve Bank of India’s (RBI’s) directives. But, we are ready with a plan to ensure that we meet the target of direct lending to farmers (13.5 per cent). We are talking to select organisations tied up with business correspondents and facilitators, which may help us reach out to the farming population. This will also help us in financial inclusion, which is a very profitable business proposition.
Does it mean that you are not opening too many branches, despite RBI freeing this for smaller towns?
We can either have brick and mortar branches or reach out with the help of technology through business correspondents and facilitators. Both have their advantages, but a commercial organisation, like ours, has to ensure that it has its own employees to run branches. But, it will take time to train people. We are in the process of hiring and training people. So, we will use both the channels. In addition, we will have mobile branches.
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You can acquire a bank and reach out faster…
We have not thought about it, at least not in the past 10 days that I have been here. Each organisation has its own eco system. While an acquisition might look attractive, it needs to be carefully thought through. Consolidation is great, but you need to ensure synergy.
Your cost of funds seems to be high. What are you doing about it, since the likes of SBI and HDFC Bank will always have an advantage in lending?
Yes, it is simple economics that your CRR should be funded by the current account (CA), while savings bank (SA) should take care of the SLR requirements. Going by this logic, our Casa should be 31 per cent today. But, we are at 13 per cent. While we are growing our CASA base, it is lower than the growth in advances. So, we need to reverse this trend, for which we need more branches. We have permission to open 250 branches, which will be done this year, to take the total number to around 1,000. Besides, we need to be proactive and ensure that customers walk into our branches, and we walk into their homes, not just to sell assets, but also to get deposits. In addition, we expect the savings bank interest rate regime to be freed, which will help.
But, that will increase the cost of your savings account balances from the current 3.25 per cent?
Yes, but it is better than paying seven per cent on fixed deposits. At present, the gap between the savings bank rate and fixed deposit rates is very large. Once the regime is liberalised, the gap will narrow.
You have got Rs 3,100 crore from the government. How long will this fuel last?
Because of this infusion, government holding will increase from 53 per cent to 65 per cent. This will give us scope to dilute stake later. Though, there are no plans of a follow-on issue, a rights issue, or a qualified institutional placement, it gives us scope to raise over Rs 3,000 crore equity.
We can raise another Rs 6,000 crore by way of Tier-II capital. And, we can leverage this lend 10 times. So, we can actually lend another Rs 1,20,000 crore and double the loan book. I think, Rs 60,000 crore lending is good enough for this year. But, we want to ensure quality and not do business for the sake of doing business.
You will have a three-year term. What are the targets you have set for yourself?
The most important thing is that we need to have top of the mind recall, though we want to be among the top-five banks. In terms of the number of branches, we should hit the 1,500-mark.
Some banks have raised deposit rates after the fourth quarter credit policy review. What do you plan to do?
We will watch the situation for the next 15 days. Then, our asset-liability committee will decide.