Following Reserve Bank of India’s concerns regarding the high incremental credit-deposit ratio in the banking system, Mangalore-based Corporation Bank is taking steps to correct the situation. In an interview with Parnika Sokhi and Somasroy Chakraborty, chairman and managing director Ramnath Pradeep says the bank is putting the brakes on loans and diversifying its deposit portfolio. Edited excerpts:
As on December 31, your incremental credit-deposit ratio stood at 107 per cent. How are you planning to bring it down?
We are trying to lower our incremental credit-deposit ratio. It should not cross 70 per cent. I have to realise deposits worth Rs 115,000 crore by March 2011. With Rs 85,000 crore in advances, our credit-deposit ratio will be around 69 per cent. I am monitoring it on a day-to-day basis. For instance, if I borrow Rs 500 crore, I will lend only Rs 200 crore. We are not lending to power and real estate sector as the sectoral exposure limits have been reached.
With the financial year coming to an end, banks are scrambling for funds to boost their deposit base and meet year-end targets. What are your requirements?
We have a huge requirement. The issue is that nobody is interested in short-term investing and if I block funds for long term, my cost will be high once they mature. These bulk deposits are a headache if you don’t have them across maturities. That is why I am taking deposits with maturities of three months, six months, a year and up to two years.
With the growing demand for credit, will you raise funds on your own, apart from those received from the government?
We will think about it. However, as of now, we don’t want to as the cost of capital is too high. We will receive Rs 309 crore from the government via preferential allotment by March-end. These funds are only being given for normal lending operations and not for investments in subsidiaries or acquisitions. This will take our Tier-I to around 8.69 per cent, as against 8.13 per cent now.
How do you plan to increase your current and savings account deposits (Casa)?
We have been able to penetrate with the help of the nano-deposit scheme for hawkers. However, the volumes are not there. There’s no flow of deposits from the retail side. The number of new accounts is much more but retention is less. Casa has been a concern, but we have been growing. Last financial year, Casa grew by 24 per cent. This year, we are aiming 25-26 per cent growth in Casa.
With the deposit cost increasing, where do you see the margins?
Though there is a pressure on margins, we will be able to maintain them at 2.5 per cent. When it comes to deposits, one can still increase the rates. However, there is not much scope with lending rates as the quality might suffer and I cannot afford to lose my customers.
When do you see liquidity conditions easing?
Today, liquidity is not an issue, cost is. There is ample liquidity now. Presently, our statutory liquidity ratio (SLR) is above three per cent.
More From This Section
How is asset quality panning out this quarter?
Recoveries have been good and upgradations are taking place, hence there are no major concerns. Things are better than the December quarter. We are monitoring recoveries on a day-to-day basis. We have appointed a consulting agency to help us sell non-performing assets. Though process is underway, we cannot put a number to it as of now.
What are the focus areas for your bank?
We are aggressively focusing on making ATMs profitable. Within a year-and-a-half, we will deploy 2,000 ATMs. All will be on an offsite basis, so we can earn commission on other bank transactions. Also, we are focusing on point-of-sale machines to earn commission. We can earn a commission of 50-150 basis points depending upon the merchant establishment.
What about branch expansion?
We are completing 200 branches this year. 105 more will be opened this month. As far as overseas branches are concerned, we are planning to explore opportunities in South Africa.