S Chatterjee, executive director, UTI Bank
With a deposit base in excess of Rs 13,000 crore and advances exceeding Rs 6,400 crore, UTI Bank has emerged as one of fast-growing new private sector banks.
For the first half of this fiscal, the bank's interest income jumped 30 per cent to Rs 701.8 crore, while net profit soared 42.3 per cent to Rs 80.15 crore.
The bank has recently been in news for its planned sale of 20 per cent stake to a strategic investor. S Chatterjee, executive director, talks about the stake sale and performance of the bank.
Can you update us on the issue of stake sale to a strategic investor?
What we are looking for is not a strategic sale. We are looking for financial investment, rather than a partner who would have a strategic interest in the working of the bank.
UTI Bank has a business model that has delivered sustained growth and profitability. To be able to grow significantly over the next few years, we need fresh capital.
Last year, we raised capital from Capital Development Corporation (CDC), a foreign investor, and this year, too, our balance sheet size has grown as we exploited our various business opportunities. To sustain this growth, we need fresh capital.
The bank has not been very aggressive in the retail sector, especially mortgage business, compared with other banks. Is it a conscious decision?
The retail segment has been much talked of in recent times. Lending to the corporates has declined in the last few years, while retail segment is estimated to grow at 30 per cent annually for next few years.
The reason for the fast growth in the retail sector is the fast-changing demographic face of the nation. People today are more willing to take a loan to finance their expenditure. To some extent, competitive financing schemes have led to this phenomenon.
We entered the retail segment late. That's because we were trying to bring down cost of funds substantially to remain competitive. We are a small bank and do not have access to long-term funds, or cheap funds.
So, the only way we can bring down the cost of deposits is by expanding our demand deposits.
We have brought in a large number of new branches, ATMs, and Internet banking facility that have enabled us to access savings deposits.
We are opening 50,000 fresh savings accounts each month. That will help us in bringing down the cost of deposits. Once that happens, we will be far more aggressive in the retail segment.
Why has the bank suffered a loss in the retail business as per the results for the half year ended September 2002?
The results for the retail segment have been skewed because of the transfer pricing model that we follow. We allocated all transaction costs to the retail segment. So, the profitability of the segment took a hit.
This year, however, we have launched an Oracle-based system where each transaction in the different segments will be costed accordingly.
This will help us reduce the excess costs that are allocated to the retail segment and provide a true picture of the segment's profitability. We hope that the new system will be in place by June next year.
UTI Bank has acquired sizeable retail assets from NBFC's. What's your strategy to minimise NPAs in this asset class?
There are several ways to ensure that the portfolio that we acquire from non-banking financial companies (NBFCs) does not turn into non-performing assets (NPAs).
As a first step, we cherry-pick the assets from the NBFCs. We make sure that there have been no defaults on the portfolio, either individually or as a group.
Then we go in for getting these assets rated by a rating agency. Finally, we get our auditors to check the accounts and conduct a due diligence to determine whether the accounts have been properly maintained.
The number of such deals is expected to come down in the future as the pricing has become sharp. Banks and NBFCs see this as a tremendous opportunity for fee-based income.
They lend money at 12-13 per cent and expect to sell these at a much lower rate. Therefore, the number of such deals is expected to dry up in the future.
Your bank's ratio of interest expended to interest earned is very high. Is there a specific reason?
The reason is that our demand deposits are not as large as other banks.
The result has been that while our cost of deposits has come down by approximately 125 basis points, it is still higher than that of some of our peers. This is because they have a very large demand-deposits base.
As I mentioned before, we are working towards increasing our demand deposits and bringing down the cost of funds.
In the ATM-sharing agreement with ABN Amro Bank, your customers are charged Rs 50 for using ABN Amro's terminals, while ABN Amro's customers are not charged anything. What's the logic, and how does UTI Bank benefit from this deal?
We have the second largest ATM network in the country. As of now, ATMs are proprietary in nature. There are no linkages between ATMs. At some point of time, the concept of shared platforms has to evolve. This is what has happened worldwide.
With shared networks, a fee is generated in favour of UTI Bank every time a customer of another bank utilises UTI Bank's ATMs. Now, it is up to the bank whether they want to pass on the cost entirely to the customer or will bear it, in part or full.
We want the sharing agreement to be free for us as we have set up a large number of ATMs in the country and will continue to do so. We hope that each new customer that uses our ATM network will come to us for business in the future.
Whether other banks pass the cost on to the customers is up to them. They may pass the cost on entirely to the customers or may pass it to them in a phased manner.
We believe this is a good strategy to attract new customers. The conversion will take place particularly if the cost is being passed on to the customer.
Notwithstanding the business model of other banks, any customer who walks into UTI Bank's ATM is a new source of data that the bank can leverage to its advantage. That apart, such deals bring in additional cash flows in form of transaction charges.
