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IDBI adopts bottom-up approach to set targets

The lender's branches, rather than the top management, to set targets as deemed achievable by it

Abhijit Lele Mumbai
For 2014-15, IDBI Bank has adopted a bottom-up approach to set business goals. Now, instead of the senior management setting targets, these will be set by the bank’s branches, based on business potential in the operating area concerned.

Though the bank became a commercial one about 10 years ago, its working continues to show an overbearing influence of its development finance institution legacy. Now, with a dire need to meet priority sector lending targets and secure low-cost deposits to reduce the cost of funds, it has to change the way in which branches operate, especially in rural areas.

Speaking to Business Standard, Chairman and Managing Director M S Raghavan said, “We are redefining the model, making every branch work with potential. It is not that I tell you and you work. They have to tell us what the potential is and set the target.”

DE-RISKING AND REORIENTATION TO DRIVE GROWTH
  • Branches to articulate business goals
  • Linking target to potential in operating area
  • Rebalancing loan book to grow retail, SME
  • Expand branch network to 2,000-plus by June 2015
  • Reduce cost of funds and improve net interest margins

Raghavan had taken charge as head of the bank in July 2013.

The new model is still at the drawing board stage. Those managing branches had set targets and these would be reviewed according to zones and regions, Raghavan said.

Reorientation
A lot needs to be done to bring balance in the share of different sectors and industries. Earlier, the bank had grappled with integration issues — the merger of banking subsidiary and mid-sized private bank United Western Bank.

“We are going in a different direction. Now, I am going to rebalance the portfolio, as the bank runs a concentration risk. Concentration of industry and industrial groups is high due to its earlier development finance institution character,” Raghavan said. The bank is keen to raise the share of retail lending and small and medium enterprises and increase its balance sheet.

  Currently, the share of the corporate and infrastructure asset book is 76 per cent, while retail accounts for 24 per cent. Raghavan says he plans to change this ratio to 55:45 in the next three-four years.

In a recent report, India Ratings had said considering the large concentrations it would be a while before the diversification of the bank’s loan book reached an optimum level and liability profile improvements were considered sustainable.

After growing at a compounded annual rate of 24 per cent between FY08 and FY10, IDBI Bank’s loan book growth slowed to a compounded annual rate of 11 per cent during FY11-FY13. It is expected in FY14, the growth will stand at 10-12 per cent.

The slower growth reflects a recalibration of the bank’s strategy to focus on improving operating performance and addressing structural issues on the liability side.

The share of large-ticket deposits in resources remains high, though the bank has been working to change this for years. India Rating said absolute retail deposits had been increasing rapidly, and while wholesale deposits had fallen to 41 per cent of overall deposits at the end of September 2013, these remained high.

IDBI Bank’s cost of funds remains above the average for public sector banks — it was 7.97 per cent at end of the December quarter, against an average 6.6 per cent for public sector banks, according to ratings agency Icra.

Raghavan said the bank had fewer branches and the share of low-cost current account and savings account (Casa) deposits was low. At the end of the December quarter, the share of Casa deposits to total deposits was 21.77 per cent.

“My cost (of funds) is high. This year, we have shed about Rs 18,000 crore of high-cost bulk deposits and substituted these with retail and low-cost deposits,” he said.

Raising large retail and low-cost deposits will need a wide branch network. “We are opening more branches and plan to have more than 2,000 branches by June 2015,” Raghavan said. As of December-end, IDBI Bank had 1,203 branches.

The bank says its capital base is adequate to support business growth till March 2016.

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First Published: Mar 12 2014 | 12:48 AM IST

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