 "Whatever we initiated, we could not see it through: C V R Rajendran")
C V R Rajendran, chairman and managing director of Andhra Bank, who demits office today on attaining superannuation, tells Manojit Saha the bank’s strategy to go slow in opening urban branches has shown results, as rural branches are profitable. Edited excerpts:
There is a perception among public sector banks that whenever a new chairman takes charge, the profit falls. Will your successor face a similar issue?
When I came, I didn’t announce more NPAs (non-performing assets). Declaring NPAs at a go is not the best solution; these need to be absorbed gradually. When I took charge (December 2013), there were a lot of stressed accounts. Over a period, we identified these accounts and started making provisions every quarter. We increased our business, increased our profit and absorbed the NPAs. We never declared more than Rs 120-140 crore of profit in a quarter. The remaining amount was always used for provisioning. Even today, when our operating profits are Rs 1,000 crore, we have declared only Rs 200 crore as net profit. Slippages and recovery have improved a lot. In the first quarter of FY14, slippages stood at Rs 2,000 crore; this has come down to Rs 700 crore. For FY15, cash recovery was Rs 1,000 crore — a record recovery by the bank. Including upgrade, it stands at about Rs 3,000 crore. There isn’t a single account that isn’t provided for. It is reflected in the provision coverage ratio. When I joined, it was 45 per cent and now, it is close to 59 per cent. We have used the profit to strengthen the balance sheet, rather than declaring higher net profits.
The coming quarters will be better than the current one.
You had a term of 16 months. Your predecessors, too, didn’t have long terms. Do you think this has hit the bank’s performance?
The last three CMDs, including I, together served for five years. That is a problem for the bank; that impacted its performance. Whatever we initiated, we could not see it through.
The Reserve Bank of India reduced its repo rate by 50 basis points in January. Most banks have reduced their base rates. When will Andhra Bank announce a rate cut?
Certainly, we will cut. So far, our major competitors in the market haven’t reduced base rates. In addition, bad loans are rising; we have to make provision for that. Margins are required to absorb some of the losses. Sometime during the quarter, our base rate is expected to be revised.
You had vehemently opposed the Andhra Pradesh government’s proposal for a farm loan waiver. Why?
We were openly opposing the move because we didn’t want the loan waiver culture to move to other states. At that time, elections were due in many states, Maharashtra for instance. Going by our experience, once there’s a waiver, the whole credit culture goes down. Our agriculture NPAs stood at two per cent. After the loan waiver announcement, it rose to eight per cent. Now, it has fallen to five per cent. It will be an uphill task to bring it back to two per cent. It required tremendous efforts to recover the money.
Andhra Bank has increased the share of low-cost deposits. Why?
To a large extent, we have started focusing on government accounts. We have started asking for a share in government business, both at the central and state levels. Another reason is we opened 600 branches in the North in 16 months, during my term.
That was a conscious strategy. Our branch count has doubled to more than 200 now, which has helped us mobilise low-cost deposits. We have seen rural and semi-urban branches contribute more to Casa (current account and savings account) compared to urban and metropolitan branches. So, we have focused on opening more branches in rural and semi-urban areas, as these are profitable. In Andhra Pradesh (except Hyderabad), the share of Casa deposits to total deposit is 40 per cent. In Telangana, it is 50 per cent. Branches in Hyderabad and Mumbai have a 11-12 per cent Casa share. The share of Casa deposits have improved to 27 per cent from 24-25 per cent during the period. When all measures start yielding results, when government business starts coming in a big way, this could rise to 30 per cent.
There is a perception among public sector banks that whenever a new chairman takes charge, the profit falls. Will your successor face a similar issue?
When I came, I didn’t announce more NPAs (non-performing assets). Declaring NPAs at a go is not the best solution; these need to be absorbed gradually. When I took charge (December 2013), there were a lot of stressed accounts. Over a period, we identified these accounts and started making provisions every quarter. We increased our business, increased our profit and absorbed the NPAs. We never declared more than Rs 120-140 crore of profit in a quarter. The remaining amount was always used for provisioning. Even today, when our operating profits are Rs 1,000 crore, we have declared only Rs 200 crore as net profit. Slippages and recovery have improved a lot. In the first quarter of FY14, slippages stood at Rs 2,000 crore; this has come down to Rs 700 crore. For FY15, cash recovery was Rs 1,000 crore — a record recovery by the bank. Including upgrade, it stands at about Rs 3,000 crore. There isn’t a single account that isn’t provided for. It is reflected in the provision coverage ratio. When I joined, it was 45 per cent and now, it is close to 59 per cent. We have used the profit to strengthen the balance sheet, rather than declaring higher net profits.
The coming quarters will be better than the current one.
You had a term of 16 months. Your predecessors, too, didn’t have long terms. Do you think this has hit the bank’s performance?
The last three CMDs, including I, together served for five years. That is a problem for the bank; that impacted its performance. Whatever we initiated, we could not see it through.
The Reserve Bank of India reduced its repo rate by 50 basis points in January. Most banks have reduced their base rates. When will Andhra Bank announce a rate cut?
Certainly, we will cut. So far, our major competitors in the market haven’t reduced base rates. In addition, bad loans are rising; we have to make provision for that. Margins are required to absorb some of the losses. Sometime during the quarter, our base rate is expected to be revised.
You had vehemently opposed the Andhra Pradesh government’s proposal for a farm loan waiver. Why?
We were openly opposing the move because we didn’t want the loan waiver culture to move to other states. At that time, elections were due in many states, Maharashtra for instance. Going by our experience, once there’s a waiver, the whole credit culture goes down. Our agriculture NPAs stood at two per cent. After the loan waiver announcement, it rose to eight per cent. Now, it has fallen to five per cent. It will be an uphill task to bring it back to two per cent. It required tremendous efforts to recover the money.
Andhra Bank has increased the share of low-cost deposits. Why?
To a large extent, we have started focusing on government accounts. We have started asking for a share in government business, both at the central and state levels. Another reason is we opened 600 branches in the North in 16 months, during my term.
That was a conscious strategy. Our branch count has doubled to more than 200 now, which has helped us mobilise low-cost deposits. We have seen rural and semi-urban branches contribute more to Casa (current account and savings account) compared to urban and metropolitan branches. So, we have focused on opening more branches in rural and semi-urban areas, as these are profitable. In Andhra Pradesh (except Hyderabad), the share of Casa deposits to total deposit is 40 per cent. In Telangana, it is 50 per cent. Branches in Hyderabad and Mumbai have a 11-12 per cent Casa share. The share of Casa deposits have improved to 27 per cent from 24-25 per cent during the period. When all measures start yielding results, when government business starts coming in a big way, this could rise to 30 per cent.