Kolkata-headquartered Allahabad Bank is dropping low-yielding loans from its assets and high-cost deposits to improve its bottom line. In addition, it is increasing its focus on the fee-based business and plans to sell non-performing assets worth Rs 373 crore in the fourth quarter. Allahabad Bank Chairman and Managing Director K R Kamath tells Namrata Acharya that the bank will not seek additional capital from the government as the reworking of risk weights has pushed up its capital adequacy ratio to above 12 per cent. Excerpts:
How was the third quarter?
The last quarter was good in terms of the movement in government securities, which provided an opportunity for banks to offset the impact of the equity market. It was a balancing quarter for the industry. There are a lot of challenges in the current year.
What are your fund raising plans?
We do not need to approach the government for additional capital because as on September, our capital adequacy ratio was 11.46 per cent. Now that the risk weights have been reduced, CAR has been reworked to 12.20 per cent. We have not fully used debt instruments.
The bank’s Tier-II capital limit is Rs 1,900 crore, and Tier-I limit is about Rs 700 crore, apart from earnings. We have enough headroom to raise capital without diluting the government stake. If the market is good, we may raise some funds, but that will not be for meeting the capital adequacy requirement.
Following the Satyam episode, will you be more cautious in lending to the corporate sector?
We do not have any exposure to Satyam. We will be alert in lending now. It is natural. You need to be more discreet in lending and cross-checking the balance sheet.
Are you looking at any new product on the retail front?
We are repositioning some of our products. We were very active in the gold business and we will be starting the sale of gold coins by April. We will also enter the bullion business again, which includes importing gold and selling it to customers.
We will also extend cash management services such as collection of cheques and remittances services to our existing borrowers. In third party products, sale of mutual funds has marginally dropped, but the sale of insurance has increased.
What is the projected deposits and advances growth?
The growth in deposits this financial year should be 17 per cent, while credit growth will be 20 per cent. We have taken a conscious decision to reduce high-cost deposits. Till March 2008, we maintained the level of bulk deposits at Rs 20,000 crore. In 2008-09, we shed high-cost deposits by almost Rs 6,000 crore. I
nstead, it is advantageous to pick up certificate of deposits (CDs) from the market now. So, the growth in deposits may not be that high. But we are concentrating on core deposits.
On the credit side, we replaced the low-yielding advances with high-yielding advances. So, the growth rate does not seem to be as high as some of the other banks. Deposits have grown at a reasonable pace, and so have advances, but there have been changes in the composition of the balance sheet, which makes the bottom line strong.
When liquidity was not a problem, we were lending at sub-PLR rates. We now understand that one cannot lend at that rate and that will help us improve the bottom line.
What about the liquidity position in the coming months?
Liquidity will not be problem as inflation is relatively low. Now, we will look at the impact on the cost of funding.
Is NPA management a concern?
NPAs are always a concern for the banking industry. Our gross NPAs declined to 1.93 per cent at the end of December 2008 and stood at Rs 1,016 crore, and net NPAs stood at Rs 429.20 crore. Net NPAs as a proportion of net advances were 0.82 per cent compared to 0.67 per cent in December 2007.
For NPA management, we have decided to give employees some incentives for recovery of loans below Rs 5 lakh. For larger NPAs, we have identified about 31 accounts, which will be put up for sale to an asset reconstruction company in the present quarter.
The total amount of such assets will be Rs 373 crore. In accordance with the Reserve Bank of India guidelines, we will restructure some of the loans to the SME sector.
Has the recent liquidity infusion enhanced lending? How has been the response to the home loan package?
Lending, which is close to 20 per cent presently, has increased on a year-on-year basis and may go up. About 65 per cent of our branches are in the rural and semi-urban areas, so our focus will be on agriculture and small and medium enterprises. In the metros, lending to the infrastructure sector is taking place at the corporate level.
This is mainly because the government has increased the spending for the sector. Lending to some sectors such as steel and cement is also improving. It is also picking up on the home loan front. Unless the real estate developers reduce prices, there will not be much impact on lending.
How much stake does LIC hold in the bank?
LIC’s stake has recently crossed the 10 per cent mark and the same has been communicated to the stock exchanges. At present, LIC’s holding is 10.99 per cent.
