Tuticorin: "My father always wanted to see me retiring as a bank branch manager, which to him is a major achievement his son could manage. He is not alive today to see me retiring as a bank chairman," rues R Natarajan, chairman and chief executive officer, Tamilnad Mercantile Bank (TMB).
Starting his banking career as a clerk in State Bank of India (SBI), Natarajan rose up to the level of deputy general manager there. In 1997 he joined Bharat Overseas Bank (BOBL), a Chennai-based private bank, as its general manager.
After three years, he retired and went to the US and stayed there for a year. He used that time to write a travelogue. Natarajan has written two more books - a collection of his poems and his father's biography.
In October 2002, he was selected from a panel of three to head TMB, which was embroiled in a takeover drama and the Nadar retrieval movement, and which hasn't held its annual general meeting for almost seven years.
Soon after assuming office he presented his roadmap for the bank - Vision 2005 - to the board. Today, despite the entire hullabaloo around him, he wants to expand the branch network and sign up bancassurance deals with life and non-life insurers. "I want to compete with India's public sector banks," he says.
Terming himself as a 'social banker', Natarajan recently spoke to domain-b about the ways and means to achieve his Vision 2005 plan, among other aspects. Excerpts from the interview:
What is this Vision 2005 programme?
If the bank continues to maintain an average annual growth rate of 22 per cent by 2005 the total business [deposits and advances put together] will be to the tune of Rs 10,000 crore. The net profit and net NPA [non-performing assets] targets will be Rs 100 crore and 5 per cent of the advances. Last year the total business was Rs 6,044 crore [deposits: Rs 4,084 crore; advances: Rs 1,960 crore].
Given the competitive banking scenario that is a real quantum jump. How do you plan to achieve this?
It will be through a multi-pronged strategy like new business initiatives and motivating the staff. Our target is mid-corporates and the trading community. Under our schematic lending we will lend them at PLR [prime lending rate] or even at variable interest rates. As a customer-friendly measure, we might even dispense with the requirement of submitting monthly stock statements.
Further, we have identified 44 branches that give us 80 per cent of the business. These branches are designated as strategic branches and they are given extra attention. In addition, branch managers now have monthly targets to meet rather than the yearly target. This keeps the managers busy and active.
But TMB is not known for its aggressiveness.
That is not true. We are silent performers. Now we want to compete with nationalised banks and not just the private banks. We have reduced our PLR to 12 per cent. [From 1 December 2003] we have reduced our lending [term, working capital and consumer loans] as well as deposit rates. It is a risky strategy. We are now going retail in a major way. Between November 2002 and March 2003 we lent Rs 165 crore. The repayment is also good. We are one of the first banks to offer landlords the facility to discount their future rentals upfront. We will lend sub-PLR to corporates with excellent credit ratings.
What is your view on sectoral PLR?
That is banned now. In my view, one shouldn't make sectoral distinctions. There are sectoral lending caps.
Last year when the whole banking industry was raking in money from treasury operations TMB failed to do so.
From April onwards the situation has changed. Our budget this year is to earn at least Rs 1 crore from treasury operations. Till now we have earned around Rs 10 crore from treasury operations.
What are the bank's plans on the computerisation front?
We have installed core banking solutions and now have networked 68 branches and introduced anywhere banking in those branches. Nearly 75 per cent of our business is generated from these branches. The remaining 103 branches will be networked before March 2004. Currently 153 branches are totally computerised.
What about other facilities like ATM [automatic teller machine] and debit and credit cards? Competitors like Karur Vysya Bank have started offering the same.
We plan to have 50 ATMs - onsite and offsite - initially. We plan to have 100 ATMs throughout India.
What are your plans to expand the branch network? Why I ask you this is because staff recruitment is related to this. With core-banking solution in place what will happen to the excess staff?
We want to open 12 more branches. We have opened eight branches this fiscal alone. Our aim is to have one branch in each state. Computerisation will unlock people from routine work. As we are going retail, we will need more people for marketing; we will re-deploy excess hands in marketing. Earlier we had planned to reduce 25 per cent of the staff, but now we find there is a need for 100 more people.
The bank has an investment portfolio of Rs 2,142 crore. Isn't it quite high compared to your operations? And your cost of funds [8.13 per cent] is also high.
What you say is true, but our hands were tied in this. Some years ago we launched two term-deposit schemes - Muthukuvial and Navarathamalai - offering 16.5-per cent interest rate. We had to honour our commitment to the depositors. By 2006 these high-cost deposit schemes will get over. In order to meet the interest outgo we had invested in long-term securities, resulting in a sizeable investment portfolio. Today the average yield on our investments is 11.24 per cent. As to our cost of funds, it has come down to 6.85 per cent. We are closely monitoring the same.
It is said that the bank suffers high NPAs. Even your board is of that view and the resolution expressing its loss of faith in you is on this count.
I assumed office only in October 2002. When I took over, the gross NPA (GNPA) was 18.75 per cent of the advances. In the last fiscal the gross GNPA was Rs 340.56 crore. During the first half of this fiscal it went up by Rs 3 crore to Rs 343.23 crore. In November this year, the GNPA went down to Rs 336.73 crore.
The amount of the net NPA gradually went down from Rs 169.95 crore at the end of the last fiscal to Rs 153.90 crore on 30 September 2003 and to Rs 147.40 crore on 30 November 2003. In the last fiscal we made a cash recovery of Rs 46 crore. This year, we have a cash recovery of Rs 42 crore. Our target is to recover Rs 78 crore. I contact the defaulters in persons and persuade them to pay back. As a result the net NPA as a percentage of net advances has come down to 7.91 per cent from 8.70 per cent at the end of last year.
How was your performance for the first six months of this fiscal?
The operating profit was Rs 86.63 crore as against Rs 63.80 crore posted for the corresponding period last year. The interest income increased by Rs 43.31 crore to Rs 274.16 crore. The other income rose to Rs 38.21 crore. The credit deposit ratio was 50.28 per cent. Deposits have gone up. We hope to close this fiscal with a net profit of Rs 80 crore (Rs 63.76 crore). During the first six months we posted a net profit of Rs 40 crore. The net-worth at the end of six months was Rs 436.88 crore [equity: Rs 28.45 lakh; reserves and surplus: Rs 436.60 crore).
And the target for this year?
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With our portfolio of diversified products and competitive rates we will do a business of Rs 7,900 crore [deposits: Rs 5,100 crore; advances: Rs 2,800 crore) by the end of this fiscal. We are in line with achieving the operating profit target of Rs 160 crore.