Unlike most chairmen of banks in India, Canara Bank’s Chairman, T.N. Manoharan, did not assume office after serving as a career banker. And, unlike most others in a similar position, he assumed this office after an illustrious career as a top-notch chartered accountant (CA) over a career spanning 35 years. Best known for the finesse he displayed in settling the Satyam Computer Services imbroglio following admission of fraud by the company’s top leadership in 2009, and for saving it from an outright collapse, Manoharan is at the helm of the bank to guide it through the challenging times that Indian banking is going through. Although Manoharan’s is a non-executive position, he has brought to the table a breadth of strategic drive while simultaneously negotiating the pitfalls with a mastery he has developed over the years as a reputed chartered accountant.
Manoharan qualified as a chartered accountant in 1983 and founded Manohar Chowdhry & Associates in Chennai the same year. He joined the Council of the Institute of Chartered Accountants of India (ICAI) at the age of 44 as elected representative. Later, in 2006-07, he presided over the central council of the professional body that regulates the profession. However, his eminence in the field arises not just from his professional competence and achievements but from the broader role he has played as an eminent educator of chartered accountants in India. Manoharan has travelled widely across the country, lecturing and teaching aspiring young CA students. He is also a well-regarded author of several books that are referred to by students. “Teaching is my passion,” he says modestly, without referring to the fact, vouched for by others, that he regularly reaches out to help less-privileged aspirants who do not have the wherewithal to afford the expensive “coaching” camps that help aspirants clear the gruelling exams for entry into the profession. Soon after his stint at the apex of the ICAI, Manoharan quit “active practice” as a chartered accountant and became a “mentor” in the firm that he founded.
Born in 1956, Manoharan has come a long way from his humble beginnings in a village near Gudiyatham in Vellore district in Tamil Nadu. The son of a freedom fighter and hailing from a family of farmers, his schooling was entirely at Gudiyatham. He recalls the reluctance of his father, a dryland farmer, to send both sons away from the town to study (Manoharan’s brother was already studying medicine in Belgaum). He recalls with nostalgia how the principal of the Government Arts College (where he did his Pre-University) was instrumental in convincing his father to “send the boy to Madras” for college education. “The principal told my father that I was the first student in the history of the college to have obtained a First Class and therefore deserved to go to Madras,” remembers Manoharan. After completing his bachelor’s and master’s degrees in commerce, he also obtained a degree in law, a rarity in the highly competitive world of accountants.
In 2008, following a Supreme Court ruling, he was nominated as a director in Sahara India Financial Corporation at the instance of the RBI, specifically charged with protecting the “public interest” in the residuary non-banking finance company that owed huge amounts of money to people at large. He successfully completed this mission and exited in October 2011. As one of the six government nominees to the scandal-marred Satyam Computer Services—at that time one of the top four software services exporters from India—Manoharan was instrumental in salvaging the company and enabling its transformation into Tech Mahindra. Manoharan points out that the entire process, from the rescue to the company’s eventual takeover, was completed in 97 days. He was awarded the Padma Shri in 2010. A recipient of several other awards, Manoharan lectures regularly at several leading professional institutes and at the RBI Staff College, serves on the boards of a few leading corporations and is hugely popular among students of accountancy. An avid runner since 2013, Manoharan is a regular participant in 10-km marathons, and since January 2015 has been running the half marathon (21.1 km). With a chuckle, he notes that his timing has improved consistently in the 13 races he has run since 2015.
In this candid interview with Frontline, he speaks on a range of issues: on why Canara Bank’s illustrious history and pioneering origin are relevant to the bank now; on the critical role that human resources plays in shaping its destiny; on why technological dynamism is crucial for modern banking; on why the bank needs a social conscience to remain relevant to India; and on several other issues. Excerpts from an interview lasting more than two hours:
You were among the first chairmen of public sector banks who was appointed in a non-executive capacity. Can you explain the rationale for the move?
In 2015, as part of reforms on the governance front, the Government of India decided to split the positions of Chairman and Managing Director, which had been generally rolled into one hitherto. The government decided that while the Managing Directors and CEOs of these banks could come from the hierarchy of the banking sector, the Chairman with a non-executive role ought to be drawn from outside, from professionals or retired officials/ bankers. The move was aimed at enabling oversight, policy formulation and the pursuit of reforms. I was among the first set of five chairmen of public sector banks appointed after the implementation of this principle. I assumed office at Canara Bank on August 14, 2015, for a three-year tenure, which has been extended by two years.
Can you tell us something about the evolution of the bank, from its humble origins to a modern banking corporation? What are the lessons from this unique journey?
The founder of this great institution, Ammembal Subba Rao Pai, was an educationist, lawyer and a great philanthropist. In his time, in the rural and in semi-urban settings, he found moneylenders thriving, which resulted in the suffering of the common man because of the huge interest burden. He also found that the entrepreneurial aspirations of the people as well as the aspirations of the youth were being thwarted because of these conditions. In particular, he found that small and medium businesses were languishing because of lack of credit and that the youth were unable to pursue higher education because of these circumstances.
The problem he framed was how to fulfil the needs of these sections at an affordable cost. This is what appears to have triggered his decision to form a benefit fund, the Canara Bank Hindu Permanent Fund, in 1906 in Mangalore. It started operations on July 1, 1906, and its first balance sheet was prepared on March 31, 1907. The bank celebrates his birthday, November 19, as founder’s day. Incidentally, the first balance sheet reflected a nominal net profit. The initial capital that Pai collected came in myriad forms: some gave cash, many, including the local peasants, contributed grain as their share of capital.
Slowly, over a period of time, the bank spread its wings in Mangalore and its surrounding areas, and then across Karnataka. At this point, the bank decided to shift its corporate office to Bangalore. The bank received a major impetus to growth after nationalisation in 1969. The bank became a listed company in the stock exchanges in 2002-03, and in the following year started Internet banking operations. Since technology was becoming an important part of banking operations, the bank was an early implementer of the Core Banking Solution (CBS). Embracing technology is often a painful process. In those days, implementing CBS was not easy; there were also setbacks and many customers left us, although they returned later. This involved huge investments and managing the transition. There were not many service providers and they themselves were in a trial-and-error mode. But the banks got the flak for all this.
Canara Bank has a record of being innovative, in terms of both introduction of technology and banking products and services. What have been some of the highlights in these areas? In the area of digitalisation, how innovative has Canara Bank been?
The bank has a record of being proactive in the matter of technology implementation and has always been innovative. This is because we keep rolling out improvised products and services for our customers on a regular basis. We also have focussed products targeted at specific clients such as small and medium-sized enterprises (SMEs) and retail customers. This is helpful because it saves time for the customer and is suited to a particular class of borrowers. Similarly, to promote digitalisation, we have upgraded many of our branches to five-star branches. In these branches, machines supplement the staff; in fact, in some cases, they replace them. This enables customers to avoid standing in queues. In order to facilitate this in the rural areas, because many people there may not be familiar with such machines, a helper or an attendant is present at the branch to guide the customer. Initially, people may be averse to using the machines, but as they become familiar with the aid of human intervention or help, they will become more comfortable in using the machines on their own.
We have also created a brand, CANDI, for establishing digitised branches. This is unique. The branch is entirely paperless. Technically, it is a staff-less branch as well, although there is one person to guide users in case they need help. Every CANDI branch has a robot that answers all the standard FAQs of customers. A prospective customer can scan his/her ID in a machine available at the CANDI branch, can get their signature captured digitally, and can get an account opened in five minutes. The customer can choose from three options of cards that the bank offers and the card is generated and printed, allowing the customer to walk away with the type of card he/she has opted for.
CANDI enables the bank to acquire a customer in five minutes. We have also installed a call connection facility at these branches. For instance, if a customer is interested in availing himself or herself of a loan, but needs some clarifications, he/she can dial in from there. The two-way audio-visual communication is meant to facilitate smooth interface between the customer and the bank. The application can be submitted online; moreover, every application can be tracked online by the customer. The idea is to provide a one-stop shop for the customer at a single location.
The bank is the leader among public sector banks in the percentage of transactions that are in the digital mode. Digital transactions now account for almost three-fourths of all transactions in the bank.
Since the first CANDI branch was inaugurated in Bengaluru in 2016, many top executives of other public sector banks have visited the branch to see how this works. Similar branches have been opened in Delhi, Mumbai and Chennai. We have decided that apart from the four that are operational in each of the four circles, we will have at least one CANDI branch in each of the remaining 17 circles before March 2019. We are consciously doing this because we understand that youth prefer this type of service.
What have been the key highlights of Canara Bank in recent times? How has the bank coped with the challenges which have affected all Indian banks in the last few years? What is the outlook for the bank?
One of the major problems for Indian banks, not just public sector but also private banks, has been the quality of assets. The loan books of every Indian bank have deteriorated significantly in the last few years in terms of the quality of assets that are being serviced by the borrowers. However, I must point out one major difference between public and private sector banks so that Canara Bank is viewed in the right perspective: there was never a mandate for private banks to fund infrastructure projects, unlike in the case of public sector banks. Infrastructure funding is essential for the growth of the overall economy. In many countries, infrastructure funding is not done by commercial banks but by institutions exclusively meant for funding such projects through different sets of financial instruments. But, unfortunately in India, this is not the scenario. This is why commercial banks had to plunge into infrastructure finance. Generally, the payback period for infrastructure projects ranges from 15 to 20 years, whereas the feasibility or viability of commercial bank lending is in the range of 5 to 7 years, which, with some restructuring, can go up to a maximum of 10 years. This is why many public sector banks have suffered from poor asset quality.
There is also another dimension to the problem. Not all the borrowers who have been unable to repay their loans can be termed as wilful defaulters. Maybe there is a segment of borrowers who may be termed wilful defaulters, but a substantial portion of the borrowers have been affected by extraneous factors which are beyond their control. Many projects have been affected by policies; several have been affected by delays in approvals or land acquisition problems; several have been affected by cost overruns.
Do you think banks entered project financing without adequate expertise to judge the viability of projects?
This was one of the several factors that contributed to the deterioration of asset quality of banks. The lack of expertise in evaluation and appraisal in banks was one contributory factor. Also, since it was mainly lending by consortia, banks that joined the consortia would rely on the lead bank to judge the viability of the project. So, if the lead bank’s evaluation and appraisal were flawed, all the banks suffered.
The point I wish to stress about the peculiarities of infrastructure lending by public sector banks is that if you take away the portion of loans that have been made to this sector, public sector banks are no less efficient than their private counterparts. I have done my homework when I say this. If you remove this segment, Indian public sector banks are just as robust and profitable as private sector banks. The point I am making is a generic one, about all Indian public sector banks. Our risk appetite was measured and guarded.
Now, specifically, about Canara Bank, I would like to highlight the fact that my bank, although tech savvy, has been conservative in its lending practices. That is mainly because of the tradition and the value systems inculcated in the bank. Unlike the case with most other public sector banks, Canara Bank’s exposure to the infrastructure sector is not very significant, barring a few power projects.
What role does data analytics play in reducing risk at Canara Bank?
Canara Bank now has a robust risk evaluation matrix and has an efficient risk assessment wing. Our risk management committees also have access to sophisticated data analytics to gauge the extent of risk in lending. In fact, data analytics is playing a critical role in Canara Bank in determining various policy decisions such as determining which sector to lend to and which to stay away from. Analytics is also used for geographical studies because the culture of compliance and honouring commitments of borrowers also varies widely across the country. Analytics also enables us to quickly identify sectors where extraneous factors are likely to provide opportunities for growth.
What does the outlook for the bank look like over the next few years?
Although the Indian economy has been among the fastest growing economies of the world, there has been a setback in the momentum, which is reflected in the extent of credit offtake after demonetisation in 2016. This was a temporary setback. The second reason for the setback, again temporary, was the introduction of the Goods and Services Tax. I think the impact of these two measures are behind us now. The momentum in credit offtake is also gradually picking up. Prior to demonetisation, credit offtake was growing at about 14 per cent, but it dipped to 7 to 9 per cent after demonetisation. While the banking industry is growing at 9 per cent, Canara Bank is growing at 11 to 12 per cent. This is because we are facilitating credit expansion but mitigating risk through the use of data analytics inputs. Another factor is that there is no decision paralysis in Canara Bank because we have systemised credit decision-making. The committees take decisions and meet very often to enable quick decision-making.
This is the year which could prove to be a game-changer for the Indian economy although there are several challenges in the form of higher crude oil prices and the impact of the international trade wars.
In the crowded space of public sector banking, what is Canara Bank’s USP as a differentiator?
The strong patronage of more than eight crore customers is our main strength. For many borrowers, Canara Bank has been their banker for generations. On the social front, whether it is in the education loans, the lending for women entrepreneurs, the implementation of Mudra scheme for small and medium enterprises or lending to agriculture, Canara Bank has always excelled. What this means is that the grass roots network of Canara Bank is very strong. This is what gives me the feeling that it is a peoples’ bank.