With the expected increase in Government spending and private investment in the year ahead, the industrial sector is set to look up through improved capacity utilisation as well as subsequent capacity expansion. The historic move of the Government to create large-sized Public Sector Banks by amalgamation is expected to give the much-needed strength to banks to meet the demands of a growing economy, says Padmaja Chundru, MD & CEO, Indian Bank, in conversation with Elets News Network (ENN).
In 2019, Public Sector Banks witnessed a lot of mergers. What is your view pertaining to it?
The amalgamations among PSBs are aimed at creating large-sized banks that can bring in economies of scale, better risk diversification, operational synergies without diluting the national goal of inclusive-growth using technology. From the point of view of sustained resilience amidst the impact of volatility in the global economy, large-sized Banks will be better positioned to withstand shocks. On the back of the smooth and successful amalgamation of five associate banks of SBI and Bharatiya Mahila Bank with State Bank of India (SBI), the next round of amalgamation of Vijaya Bank and Dena Bank with Bank of Baroda has been successfully carried out by April 2019. With the 30th August 2019 announcement of the consolidation of 10 PSBs into 4, the number of PSBs will come down to 12 from 27. All these have to be seen in the context of strengthening the health of PSBs and sustaining them in the long run, as PSBs play the most crucial role in propelling economic growth with inclusiveness across the society.
There is immense optimism that the amalgamation exercise would bring in numerous positives like business synergy, cheaper credit, better control over asset quality, effective negotiating powers, flexibility to deploy robust IT infrastructure, rationalisation of operations, ability to mobilize capital from the market and improved governance. By assuring that the interests of employees will be fully protected in the post amalgamation period, their cooperation and support in this challenging task has been ensured. It is expected that wherever overlapping of branches/ offices are there, there will be rationalisation which will reduce costs and also the manpower drawn out of that exercise will be more productively utilised.
As a part of the merger plan, Allahabad Bank is going to get merged with Indian Bank. Tell us about the developments.
Immediately after the announcement, the Top Management of the two Banks met in Chennai to chalk out the modalities and to understand each other’s perceptions. Board of Directors of both the Banks approved the proposal and this was communicated to Government of India. Subsequently, we received the approval of the Alternative Mechanism of the Government. A formal gazette notification is awaited. To get the amalgamation process going, an Integration Management Office (IMO) has been established in the Bank and the IMO is tasked with coordinating every aspect of the process. An Apex-level Committee comprising the Whole Time Directors of both the Banks is in place to guide and oversee the process and a Steering Committee has been formed with EDs and GMs of both the Banks to oversee and approve modifications in the products, policies and processes.
There are Functional Committees at the Vertical/Departmental levels with members from both the Banks that will discuss products, policies and operational aspects, technology related matters, etc., arrive at best options for the amalgamated entity. Regular interactions are happening at all levels through video conferencing and visits. We have already engaged Consultants for Financial & Tax Due diligence, Valuation to determine swap ratio, Fairness opinion on Share exchange ratio and Legal due diligence, Integration Management Office etc. The Bank has already chalked out a time-bound action plan for integration of CBS platform/other applications, sizing of IT infrastructure, etc. in coordination with IT vendor. To give the much needed confidence to employees and to assure the customers of uninterrupted service during the amalgamation process and enhanced quality offerings post-amalgamation, Town Hall meetings were organised in Chennai, Vijayawada, Kolkata and Hyderabad.
The meetings saw overwhelming participation of both the Banks’ employees and customers. More such meetings are planned to be organised at some strategic centres in the near future As a step towards bringing in integration of culture by way of healthy exchange of ideas and views, a workshop with the theme ‘Cross Organisation Integration’ was organised at Kolkata in which 35 Zonal Managers from both the Banks participated. From the feedback received, the workshop has achieved to serve the desired objective of ensuring seamless integration of HR, IT and operational issues besides creating an awareness on leadership and communication skills and team building.
Two more such workshops for the Zonal Managers will be organised in the near future. Based on our assessment, we are confident that the amalgamation is expected to generate synergies out of wide geographical presence, optimisation of IT platform, consolidation of a larger talent pool, economies of scale besides overall operational efficiencies. In quantitative terms, these synergies are likely to translate into increased margin in core activities, higher fee income, expanding business, improved gains from treasury operations and asset monetisation. Cost efficiencies through optimisation of branch/office networks, back office operations, optimal utilisation of HR, rationalisation of vendors, etc. The amalgamation is also expected to give the advantages of integrated marketing and brand building besides expansion of financial inclusion due to engagement of higher number of Business Correspondents.
Non-Performing Assets (NPAs) remained a major matter of concern for the lenders. How did your bank talk this matter?
Indian Bank has been consistently faring well on this critical NPA and Stressed assets front and the Banks is having the best of ratios – GNPA, NNPA and Stressed Assets vis-à-vis other PSBs almost every quarter during the last several years. This can largely be attributed to the fact that the bank has put in place a robust credit monitoring mechanism duly supported by an effective MIS, with a separate vertical headed by a General Manager. There is effective EWS system which helps to identify stress quickly and to make faster intervention to prevent slippages. Separate recovery vertical has been set up supported by specialist officers experienced in handling large stressed advances.
Specialised Asset Management branches at important centres closely monitor and accelerate recovery in high value NPA accounts. The Bank adopts a multi-pronged approach that include effective use of Recovery Agents, timely action through SARFAESI mode, active participation in Lok Adalats, holding of mega e-auctions, filing of joint suit, invocation of pledge of shares, invocation of personal guarantee and filing of application under IBC. The most important aspect of all these, the Bank consistently attaches importance to timely interventions. Based on requirements, we decide upon sale of assets to ARCs too and we give thrust to resolution through One Time Settlement mode in unsecured loans and in cases where enforcement of collaterals is unlikely to fetch better recovery. The Bank is quite hopeful that the resolutions achieved through NCLT are likely to bolster recovery and further bring down NPAs.
NEFT has been now made a 24X7 service. Do you see this as a challenge or opportunity?
I look at it both as an opportunity and challenge. Opportunity in the sense that the convenience of funds transfers online any time all through the year will further push up the volume and value of digital transactions. The next move of RBI mandating Banks to withdraw NEFT charges for transfers from SB Accounts is likely to give impetus to online transactions. With the strengthening of the IT architecture and the consequent declining instances of transaction failures, it is expected that Banks are likely to witness inflows as customers would prefer to move funds from e-wallets into their bank accounts. This, in turn, would provide banks with low cost funds. The challenge for the banking sector, on the other hand, would be to ensure that the payment systems are robust with capacity to scale up as transactions increase and minimise the margin for error or failure so as to provide transfer facility round the clock. Simultaneously, technological challenges, if any, that are posed from time to time, need to be handled and resolved swiftly so as to keep the customer confidence intact.
What are your learnings from 2019? What is in store for 2020?
As an optimist who has seen the varied times of banking sector for more than three and half decades, I see the challenges faced by the banking sector in the last few years as the downturn part of the cycle which is bound to turn upward. The banking sector’s challenges were mainly due to globally impacted economy and its consequential impact on various sectors including NBFCs, MSMEs, Infrastructure, Corporates, etc.
As all the forward thinking people expected, Government of India took a series of initiatives towards arresting the slide since June 2019. As regards the banking sector, strengthening of the IBC helped in commencement of resolutions in large value NPAs. This, along with the Government’s move to extend recapitalisation support to needy PSBs, enabled many of them to come out of the PCA category which in turn, enabled them to carry out normal banking activities. Another significant move initiated towards lifting the economy was the consistent accommodative stance taken by the Monetary Policy Committee of RBI which has reduced the policy rate cumulatively by 135 bps in 5 consecutive reviews prior to the last one. Both the Government and RBI continued emphasis on transmission of the reduction in rates and to make it more effective, Banks launched Repolinked loan products under Retail and MSME sectors. This move aimed at spurring market demand which will have spiralling impact on all other sectors, has started yielding results, as the steady growth in loan book of Banks under these portfolios indicates.
Several tranches of ‘Outreach’ programmes launched by Banks at mandated by Government of India, for lending to MSME, Retail and other sectors, coupled with the online lending platform ‘psbloansin59minutes.com’, co-origination of loans by Banks with NBFCs and Partial Credit Guarantee Scheme for loans to NBFC sector, are having the desired effect on all these crucial sectors. With the expected increase in Government spending and private investment in the year ahead, the industrial sector is set to look up through improved capacity utilisation as well as subsequent capacity expansion. The historic move of the Government to create large-sized PSBs by amalgamation is expected to give the much-needed strength to Banks to meet the demands of a growing economy.