Public sector lender Corporation Bank is looking to expand its footprint by setting up general insurance and mutual fund ventures. Chairman JM Garg spoke to Abhijit Lele and Sidhartha about the bank’s strategy. Excerpts:
In the background of high government borrowings, what is your expectation on interest rates?
There is a lot of liquidity in the system, but the demand for credit is still lukewarm. The business community will go for capacity expansion only when they are confident about a rise in demand. It is not that projects are unviable at the moment, but sentiments have to pick up at corporate and retail levels for the demand for funds to start rising again. In the short term, interest rates may not move up. According to my assessment, rates may stay at current levels up to the last quarter of the current financial year. If oil and commodity prices increase, then it is a different story.
So, what has been your experience on the lending front?
On the credit side, the growth has been 24-25 per cent during the first quarter, while deposits have grown by 28 per cent. For us, the credit growth has mainly come from corporate business, which was of the order of 40 per cent, and agriculture. Retail was a little tardy at 11 per cent and small and medium enterprises (SMEs) at 20 per cent. We did quite well on the infrastructure front, especially in the power sector, given the huge deficit. If certain policy decisions are taken, especially regarding roads, then more projects will come up.
What about the delinquency level since there seems to be an improvement for some banks?
There was some pressure in the first quarter. In agriculture, delinquency has gone up because of an expectation that the government will announce another loan waiver scheme. In certain retail sectors, especially home loans, there was some problem. In the second and third quarters, we are focussing more on recovery and we intend to have a one-time settlement scheme for agriculture and SMEs to address the problem. For recovery, we are targeting big-ticket accounts.
LIC is a major shareholder and you had plans to jointly launch a credit card company. What happened to it since the card has already been launched?
Corporation Bank is providing credit card services and the risk is on our books. Ultimately, the understanding is to launch a separate company, but LIC is waiting to reach a base of around 100,000 cards before floating a separate company. We are targeting 50,000 customers in the first year.
What about raising capital since you have the government as well as LIC as shareholders?
We do not need capital at the moment as the present base can support business growth for two years. But if we want to raise capital, we will have to look at a rights issue or a follow-on public offer.
Many banks have set up insurance and mutual fund subsidiaries. What about Corporation Bank?
We cannot get into life insurance because LIC is a shareholder. We are talking to some companies for setting up a non-life insurance joint venture, but these talks are preliminary in nature. Even a mutual fund venture would be beneficial if we do it independently. We are also looking at the wealth management business and are trying to improve our presence in the non-resident Indian market. All these initiatives are important to ramp up our non-interest income.
The government has once again talked about consolidation. So, will you take over some bank or are you willing to be merged with someone else?
Consolidation is a reality. The only question is when will it happen. It will take its own time. At the moment, everyone is watching SBI, which is merging its associate banks. For them, it’s a win-win situation.
In case of others, the employees’ unions will have to be taken into confidence and their concerns sorted out. That will take some time. For us, it is important that we achieve a business of Rs 2,00,000 crore and a net profit of Rs 2,000 crore to be in a position to acquire another bank. That will take at least two years.
Each bank is looking at expanding network. What growth model is Corporation Bank following?
We have applied to the Reserve Bank of India for permission to open 150 new branches. In the North, the focus will be on urban areas, while in the South, the bank will expand in semi-urban and rural areas as it already has a significant presence in the region.
