Zeroing in on the small to make it big

award for 2004 goes to B D Narang who transformed what essentially was the north India-based Oriental Bank of Commerce into an all-India bank with zero non-performing assets.

Considering that he's the chairman and managing director of one of India's most successful public sector banks, B D Narang's office on the third floor of Harsha Bhawan at New Delhi's Connaught Place is rather small. But Narang says the size of the room goes well with his motto: his customers should not feel they are talking to a "big guy," somebody who is far removed from their daily concerns.

His room apart, other things as well reflect Narang's preference for the small to ensure that Oriental Bank of Commerce (OBC) makes it really big. For instance, the bank's dependence on small and medium enterprises (SMEs). Over 50 per cent of the bank's business still comes from SMEs. Explains Narang: "The average yield from SME business is over 9 per cent, compared with over 6 per cent from corporate business.

Thankfully, small people are still obsessed with their family dignity. The recovery problem arises with the corporate sector. GTB went down the drain because of the corporate sector. So it's not that corporate loans are hassle-free," he says. Apart from SMEs, Narang's big focus area is retail business (30 per cent share in the bank's total business) while the balance will be taken care of by big companies.

Narang says he would rather hit the road to listen to his customers than sit in the air-conditioned confines of the board room. The customer focus, which is almost like a religion for him, has paid off: the Delhi-based bank grew 21.5 per cent last financial year (versus the industry average of 17 per cent), and its balance sheet size (deposits and loan advances) was Rs 51,268 crore in 2003-2004. The balance sheet size has increased by Rs 10,000 crore to Rs 65,000 crore after the merger with Global Trust Bank was announced on July 24 this year.

Narang, who says he has completed his immediate task of meeting GTB's 8.34 lakh retail customers, has revised his growth target for the financial year. Before the merger proposal, OBC had aimed at 25 per cent growth in 2004-2005. That target has been raised to 30 per cent to touch Rs 80,000 crore. Though he is retiring in April next year, Narang wants to pave the way for a Rs 100,000 crore balance sheet by the end of 2005-2006, with a head count of 14,000. "Wait a while. Nobody can take us for granted any more," he says with a triumphant smile.

Narang's track record (he took over as chairman and managing director in 2000) has been spectacular. His biggest contribution has clearly been his ability to transform the essentially north-based bank into an all-India bank with the distinction of zero non-performing assets.

Consider the other figures: while the cost of funds has gone down to under 5 per cent today versus 9 per cent in 2000, the NPA coverage is 107 per cent (23 per cent), the net interest margin is 4 per cent (under 3 per cent), the return on assets is 1.7 per cent (0.9 per cent) and the cost to income ratio has gone down to 29 per cent from 40 per cent in 2000. Today the bank's per branch business is Rs 55 crore, and Narang expects this to increase to Rs 100 crore in two years.

One banker who had a profound influence on him was F K F Nariman, the former chairman of Union Bank. A year after joining Union Bank as a probationary officer in 1969, Narang got an opportunity to meet Nariman.

He hasn't forgotten the lesson Nariman gave him at that meeting. Pointing his finger at the row of brokers' chambers just opposite the bank's office, Nariman told him: "Narang, you must talk to them but don't ever get influenced by what they say. Remember, as a banker you are the custodian of public money and learn to take independent decisions."

Much of GTB's problems, Narang feels, is because the bank's former promoters forgot this dividing line. "There are two Gellis," he says referring to Ramesh Gelli, the former chairman of GTB. "The first Gelli is a visionary, extremely efficient and someone who built a world-class organisation with a pioneering role in customer service. Then there is the other Gelli who forgot that he is the custodian of public money and put all his eggs in one basket."

Narang's colleagues say he has an earthy sense of humour which he often uses with devastating effect. Once the bank's trade union office bearers came to meet him demanding that the bank sharply increase the number of clerks who would be promoted to officers without any exams.

Narang's response stumped the union "� he offered to promote all the bank's clerks to officers. The stunned union leaders pleaded with him not to be so generous. "Sir, hamara dukandari bandh ho jayegi," (Sir, our shop will be closed), said one of them.

Narang, who has a masters degree in economics from Punjab Agriculture University, says his one big regret is that he was denied a doctorate degree in econometrics as he completed his papers earlier than scheduled and the university asked him to repeat the papers again. He also got an offer from the University of Kansas in the US to work towards a Phd but financial aid would come only after three months of enrolling. He couldn't afford the cost.

But his on the job training "� first at Union Bank, and then at Punjab and Sind Bank (he wanted to desperately come back to Delhi to take care of his ailing mother) and finally at OBC "� equipped him well. "The biggest advantage of a public sector job is the opportunity for mobility," he says.

He worked in the interiors of Uttar Pradesh and Madhya Pradesh. "The stints were a blessing in disguise as the head office managers had no clue about how business was done in these places," he says. He remembers his three-year stint at Jallandhar between 1982 and 1985. Business grew by 40 per cent even at the height of the terrorist movement.

A four-year stint in Hong Kong between 1988 and 1991 was also a great learning experience. He converted Union Bank's $10 million loss at its Hong Kong operations to a $10 million profit when his tenure ended. The good work was recognised immediately by the bank's competitors and he got a lucrative offer from a foreign bank with a salary which was at least 20 times more than what he was getting at that time. "I turned down the offer as I knew I would never be able to become the number one in a foreign bank. But my calculations showed that if I did my job well, I would one day become number one in a public sector bank," he says.

The journey to the top job has of course meant a few sacrifices "� he has been working for over 14 hours every day. And after the GTB deal, his daily golf routine has also been disrupted. The only luxury he allows himself is watching English action films every night before going to bed. "They are great stress busters. You can allow your brains to take rest while watching them," Narang says.

Books are also a passion, especially management books, as they help in keeping him "contemporary."

So what will he do after retirement? Narang says he'll steer clear of banking as he is tired after 37 years in the same field. "There is no point in looking back. I would be happy if I am remembered as some body who played his innings well."

My biggest achievement has been making
OBC a national bank

What has been the key to Oriental Bank's success?

Our focus has been on listening to the customer. We believe there is nothing called one-size-fits-all in banking. Therefore we continuously encouraged area-specific schemes. Diktats from the head office are kept to the minimum. The results are flowing in. Today our per branch business is Rs 55 crore. In two years, we will make it Rs 100 crore "� extremely competitive by any standards.

Isn't OBC too dependent on small & medium enterprises (SMEs)?

There is nothing wrong with that. Look at the figures first. The average yield from corporate business is over 6 per cent. The yield from SMEs is over 9 per cent. That's our bread and butter. The security cover is also quite good. When things go wrong, the risks are few.

Thankfully, small people are still obsessed with their family dignity. At the same time, big corporate accounts are required for building critical mass. That's why we have decided that 20 per cent of our business will be corporates, 50 per cent SMEs and 30 per cent retail products. That mix should give us a good balance between size and yield. What's the purpose of having size with lower yields?

In the past, retail accounts accounted for only 20 per cent of our total business. We are in the process of correcting that with, for example, housing loans "� a business which has picked up very fast. Education is another area. We are spreading our wings in the retail sector.

If you were to do a SWOT analysis for the bank, what would it be like?

The quality of manpower has improved significantly with our focus on rigorous training. In fact, last year we spent on training almost double the amount spent in the previous 25 years. In short, we have tried to make our manpower contemporary. Technology is another key strength. In another year, all our branches will be fully networked, making us a financial powerhouse.

The weakness is that we have been considered a predominantly north-based bank for far too long. We need to expand our presence vigorously. The opportunities are many. Imagine a bank with a balance sheet size of Rs 100,000 crore (from Rs 65,000 crore now) with a head count of just 14,000. That's precisely what we are targeting to achieve in two years. Once we achieve that, we will give all our so called illustrious competitors a run for their money. Today you must have size with contemporary technology.

The threat "� though I hate to use that term "� is that we have not yet achieved critical mass. The age of the staff is also slightly adverse. Today the average age of the staff is 45-plus. We have to make sure that we replace the vacancies arising out of natural wastages with people who are far younger and technologically capable.

Isn't OBC still known essentially as a northern bank?

That's history. My biggest achievement has been to make OBC a national bank. I understand the reasons for this perception. Even a few year's back, we had no acceptance in states like Maharashtra, Gujarat, the eastern region and the south. After the Global Trust Bank deal, the bank has gained acceptance in the south overnight.

Now, we are looking very aggressively to grow in the east "� in Bihar, in Jharkhand, Orissa, Chattisgarh and Bengal. We will soon set up a regional office in Bhubaneswar. My immediate expansion plan priority is to grow organically in the east. My unions are ready, my officers are ready.

OBC takes credit for its zero NPA. But the bank treated its exposure to IFCI as a standard asset. In other words, if you had not done so, you could not have achieved zero NPA.

The government wanted it that way as other banks had an exposure of Rs 600-800 crore (in IFCI). Our exposure was only Rs 100 crore. If our principal shareholders wanted it to be treated as a standard asset, we had no option. But we have provided for it in our US GAAP accounts.

What is the point of zero NPA by higher provisioning when slippages (fresh NPA accretion) are a reality?

Wrong. Our recovery performance has been substantially better than slippages. Our gross NPAs last year came down by Rs 55 crore. You will see the gross NPAs coming down sharply this year also. We have been able to crack most of the big accounts.

Won't the GTB deal affect your financial parameters?

For a very temporary period, yes. But in the long run, I see a profit potential of Rs 150-200 crore in the GTB operations. That will offset our costing. It's just a question of one or two balance sheets.

Are you raising Tier-II capital to meet the capital adequacy ratio?

We might require some fresh capital in the light of Basel II. Our capital adequacy ratio has come down from over 14 per cent to 11 per cent after the GTB deal. We may have to raise some capital next year.

The question is whether to go abroad or raise money from the domestic market. My experience has been that it's very expensive to raise money abroad, especially for a small issue.