Chennai: Not long ago, Bharat Overseas Bank (BOBL) hit the news for all the wrong reasons, as problems between the bank management and the staff assumed gigantic proportions.
G Krishna Murthy, a senior general manager at Vysya Bank, was sent in on deputation to solve the issue. Soon after assuming office as chairman at BOBL, Murthy told domain-b: ''I will sort out all the thorny issues with a humane approach.'' He, well, has managed to do just that.
''Today we can breathe easily without any fear of vindictive action,'' says an employee. As an indication of the confidence the staff have in Murthy's leadership, the clerical cadre is even ready to undertake marketing functions.
Murthy is fortunate. He faces no promoter interference in the bank's daily operations, despite heading a bank promoted by seven other banks (Indian Overseas Bank, Bank of Rajasthan, Vysya Bank, Federal Bank, Karur Vysya Bank, South Indian Bank and Karnataka Bank).
Murthy, a chartered accountant, has been able to run the bank professionally for the past two years. He details his game plan for the bank in the following interview. Excerpts:
Talk of BOBL, and what comes to mind is the industrial relations problem it faced before you took charge. For the past two years the bank has been running smoothly. How did you gain the employees' confidence?
It was basically a clash of egos between the union and the management. In order to deal with the staff issues, a separate committee has been constituted. This committee of executives, with members drawn from different departments, discusses the human relation issues and fixes accountability. The board has also constituted a committee of directors to look at human relations.
What impact did the recent Credit Policy have on your bank? Even though the Bank Rate was cut earlier, there was no commensurate reduction in lending rates by the banks to the small-scale sector. What is your view?
The Credit Policy shows that interest rates will fall further. We have reduced our PLR [prime lending rate] by 50 basis points to 13 per cent. Similarly, the deposit rate has gone down by 50 basis points. The credit off-take is healthy. During the first half of the current fiscal, the credit growth was 9 per cent.
With reference to credit for the small-scale sector, nationalised banks offer it at 12.5 per cent, 1 per cent over their PLR. Ours is slightly more than nationalised banks, but we compensate with better service. We also lend at sub-PLR levels to profit-making AA-rated corporates with a net owned fund of Rs 50 crore and a current ratio of less than one. I don't expect the interest rates to go up in the near future.
Nowadays the corporate sector can get its funds from several sources, and at much cheaper rates. In this situation, what is your focus and what is the future for small banks like BOBL?
It is true that big corporates get funds from sources other than the banking sector. And that is why you see big nationalised banks getting into the retail lending space. BOBL will be focussing on borrowers whose requirement is between Rs 15 lakh and Rs 3 crore. Small banks should focus on such niche segments.
Most of the new private banks have invested heavily in technology and started reaping the benefits. What is your game plan?
We are investing Rs 20 crore in technology. We have a banking software package from i-Flex Solutions, hardware from IBM India and a networking package from HCL Comnet. We are also holding negotiations to outsource the data centre. Orders have been placed for automated teller machines (ATMs). Once these are in place, you will see BOBL becoming active in the retail domain.
Can you elaborate on your retail plans?
Apart from other retail loan products, we will sell insurance and mutual funds. We are talking to a life insurance company and a couple of non-life insurers for this. We will not be a corporate agent, but will allow space for insurers in select branch premises and earn commissions on the sales. Mutual fund products will come after insurance. Then we will get into depository services.
For the first six months of the current fiscal, BOBL posted a net profit of Rs 9.02 crore, showing 12.5 per cent growth over the corresponding period of the previous year. However, the OPM [operating profit margin] came down by 5.52 per cent to 16.39 per cent. Your comments.
It is true that the OPM has come down. That is because of the lack of opportunities in treasury trading, unlike in the previous year.
Is that why you fixed the target for investment income at Rs 10 crore as against last year's income of Rs 32.95 crore from treasury operations? How do you plan to make up the shortfall?
We are looking at the liabilities side of our balance-sheet. The reduction in interest on deposits will reduce costs by Rs 11 crore, while the interest on increased advances will give us additional funds. Recovery of non-performing assets and reduction in provisions will release Rs 4.5 crore. This way we will bridge the gap and maintain last year's profit levels. The bank's cost of funds is 6.69 per cent and the spread is 2.8 per cent. This year we are targeting deposits of Rs 2,145 crore and advances of Rs 1,160 crore.
BOBL has 78 branches now. What is your branch expansion programme?
By 2004-05 we would like to have over 100 branches. Recruitment will be need-based. The full automation of our operations will release staff who will be re-deployed. There is no need to implement a voluntary retirement scheme.
Why is BOBL planning to revamp its capital structure?
Our capital adequacy ratio is a comfortable 15 per cent, far higher than the stipulated levels. But the tough Basle-II norms will soon be implemented here. When that happens, we will need a larger capital base to offer additional services like cash management. That's why we have hired SBI Caps to study our existing capital structure and give suggestions. As per our estimation, three years down the line, BOBL will need Rs 75-crore additional capital. Now our tier-I capital is Rs 121 crore and the tier-II capital is Rs 21 crore.