'Trade unions helped transform the bank'

Q&A: O N Singh

O N Singh

Kolkata-based Allahabad Bank is transforming itself at a fast pace. Traditionally, the bank has been growing its business by 12 to 15 per cent annually. Over the past one year (between September 30, 2003 and September 30, 2004), the growth rate has doubled. Staff productivity that was way below the industry average has now caught up and the percentage of non-performing assets (NPAs) to total assets is dropping sharply. The agent of this change is the bank's chairman-cum-managing director (CMD), O N Singh, who took over in December 2003 after another Mumbai-based senior banker declined to take charge. In a casual chat, Singh discusses his management style and the future of the bank with Business Standard. Excerpts:

How did you manage to make such a dramatic change in the bank's performance in such a short time?

I had a month before I took over as CMD to study the bank. I called for files of all the executives of scale IV and above "" about 1,200 or so "" and studied the files carefully. My findings were quite revealing. The senior managers' approach was extremely defensive and almost all of them were in favour of maintaining status quo. They lacked the will to do business and were a demotivated lot.

Why?

Possibly, nobody cared for them. All public sector bank executives come from the same pool "" the former Banking Service Recruitment Board. In some banks they perform while in some others they don't. So we need to see what actually went wrong. The previous chairman had retired in March last year and there was a gap of eight months by the time I took over. Historically, the business aspect was ignored by the bank management. In 1927, Chartered Bank took over this bank and shifted the headquarters from Allahabad to Calcutta [now Kolkata]. Till 1969, when the bank was nationalised, only a British citizen could be the chairman of the bank. All these years, India operations were ignored by the Chartered Bank management.

So there is nothing positive about the bank?

It has many strong areas. This is the oldest bank in India "" born in 1865 "" that still retains its original name. In 1923, the banking wing of P&O, Singapore, acquired a majority stake in the bank. Four years down the line, when Chartered Bank took control of it the transfer price was a whopping Rs 460 for a Rs 10 share in those days. It has a fantastic systems and procedures in place.

For instance, there is an internal arrangement that the bank cannot build more than 5 per cent of its total assets in any segment of industry. That is a very prudent approach.

Apart from a rich heritage, it has a good presence in the Indo-Gangetic belt. Then, it had 20 million customers. Do you know that Motilal Nehru, Jawaharlal Nehru and Indira Gandhi had all been Allahabad Bank's customers? To top it all, it has a large chunk (43 per cent) of low cost deposits "" savings and current account "" which has brought down the average cost of deposits to 5.2 per cent. The only problem with the bank has been that the people "" its employees "" are ignored and have become a victim of a bureaucratic culture.

What did you do to wake them up from the slumber?

I placed my diagnostic analysis before them and provoked them to think. I gave them very stiff targets for deposit and advance growth "" 30 per cent "" while they were growing at about 12 per cent and made them believe that they could achieve that. I also transferred some of the "irreparable" people and closed and merged some branches. About 1,200 people were transferred. I had a long discussion with the trade unions and made it very clear that those employees who were not performing could not be protected. Frankly, the unions played a big role in transforming the bank. The messages travelled fast and by the last quarter of the last financial year "" January -March "" it was evident that the bank is on the growth path.

Give us some idea about the transformation.

The numbers tell the story. The deposit portfolio was Rs 27,390.28 crore on September 30 last year. It has increased to Rs 36,500 now. Similarly, the advance book has grown from Rs 14,121.37 crore to Rs 20,000 crore. The total assets of the bank jumped from Rs 30,282.22 crore to about Rs 41,500 crore. Productivity per person was Rs 1.50 crore last year has gone up to Rs 2.25 crore now. The gross NPA of the bank is set to dropped from 12.03 per cent in September last year to 6.50 per cent now and the net NPA from 5.21 per cent to 1.71 per cent. Since we are a listed entity, I cannot talk about the profit figures but certainly the business growth will be reflected in our bottomline.

How did you make the employees work?

I encouraged them to lend and took a calculated risk by dismantling the existing vigilance apparatus in the bank. The credit officers were scared because the vigilance officers were sitting in every region and scrutinising every deal. I segregated the vigilance wing from operations and made it clear that the vigilance officers would only be used for inspection and not remain a part of operations. I also told my employees that nobody will be punished unless they are corrupt. This helped boost morale.

What has been your business strategy?

The focus has been on the retail business including agricultural loans. I have studied the credit portfolio and found out that the average return on agricultural loans is 10.7 per cent against 9.5 per cent for industrial loans. Fresh slippages (good loans going bad) are less than 2 per cent annually in the agricultural loan segment while for industrial loans it is 3.5 per cent.

Moreover, farm loans are all secured because the farmers never run away. We have also opened 250 retail banking boutiques (RBBs) "" a one-stop shop for all retail financial needs. These RRBs are inter-connected. The three areas we have been focusing for loan growth are agriculture, retail and public sector undertakings. The response time to any loan proposal is now 30 days "" quite fast by the old standards.

Can you sustain the pace of growth?

Yes, we can. There are enough opportunities. We are tapping all avenues to grow. There is an aggressive recovery drive. We are reopening even those cases that have been restructured through the corporate debt restructuring (CDR) cell and asking them to go for a one-time settlement. The bank's net NPA is dropping on account of large recoveries and not provisioning alone. We have shifted our treasury to Mumbai even though the general manager, treasury still sits in Kolkata. All these steps will contribute to growth.

With interest rates rising, will you be able to maintain profitability?

I have already transferred the entire SLR portfolio to the held-to-maturity category of investment that does not need to be marked-to-market. By doing this transfer, we have taken a hit of Rs 175 crore. This will largely be offset by trading profit of Rs 100 crore in the second quarter (July-September). In the first quarter of this financial year (April-June), the trading profit was Rs 200 crore. We plan to create an investment fluctuation reserve of Rs 400 crore or 5 per cent by March 2005. This can absorb a shock of at least a 1 percentage point hike in market rate of government bonds from the current level.

With your plan to go online and put in place a core banking solution, won't you find the bank over-staffed?

We are not over-staffed. The excess staff "" about 2,500 "" are being employed to generate fee-based income. We are selling insurance policies for Life Insurance Corporation [LIC], National Insurance, ECGC and Unit Trust of India's mutual funds. Earlier we had a tie-up with ICICI Prudential. I snapped the tie because we were earning only 4 per cent for the referral arrangement. Now, from LIC, we earn 14 per cent.

Where does the bank go from here?

We plan to spread our wings overseas. We have applied to the Reserve Bank for setting up a branch in Hong Kong. We are also planning to open a representative office in China. We are joining hands with Punjab National Bank for a joint venture at Amity in Kazakasthan. We are revamping our leasing subsidiary that is well capitalised. Finally, we plan to tap the capital market with our second public issue over the next few months.

In the consolidation game to be played in the banking sector, will you be an acquirer or be acquired by some other bank?

Over the last 140 years, Allahabad has not changed its name although promoters have changed. We would like to retain the name. Earlier, we informally looked at a public sector bank in west. Now we are looking at a bank in the south that can be merged with Allahabad Bank. We have not formally moved the finance ministry with any merger proposal.