'The bank has seen growth across the board'

Founded in 1925, Syndicate Bank still swears by its motto: The Small Man's Big Bank". With 2,000 branches spread around the country, the bank hopes to do business worth Rs.100,000 crores and register a profit of Rs.1,000 crores by March 2007. Excerpts from an interview that N. Kantha Kumar, the bank's chairman and managing director, gave Ravi Sharma:

Technology is the name of the game in the banking industry. Syndicate Bank appears to be lagging behind...

The perception that we have lagged behind is not correct. We were one of the earliest public sector banks to go in for core banking solutions. At the end of March 2005, we had brought 245 of our branches in 150 centres - totalling 40 per cent of our business - under core banking. We are taking this number to 500 - covering 70 to 75 per cent of our business - by March 2006. Being associated with the `Cash Tree' consortium of banks, we are planning to increase the number of automatic teller machines (ATMs) to 500 by the end of this financial year. More ATM cards are being issued, the facility of anywhere banking cheques in respect of core banking is being made known to corporate and high net-worth customers and we recently inaugurated the `Syndbillpay' facility, where customers in Bangalore, New Delhi and Mumbai can give instructions to the bank to debit their account and make payments for their mobile bills via the Internet. We are planning to extend this facility to other centres and also rope in more service providers.

What about technology initiatives in the rural areas?

Two-thirds of our branches are in the rural and semi-urban areas. Although they are all computerised, there is no sense in bringing all our rural branches under core banking since there isn't much demand for this service from customers. The workload on our branches in the rural areas is more, but employees would prefer to be posted in the urban centres. To overcome this lacuna and to see that the computerisation of rural branches is fully utilised, we have put in place a pilot project - hub and spoke model - where each account is connected to the controlling officer at the regional office through the Internet. This will relieve rural bank managers of some of their duties, the time saved will be utilised for marketing and recovery duties. This project will slowly be extended to all branches.

Syndicate Bank recently announced that it was merging four regional rural banks (RRBs) sponsored by it in Karnataka into one RRB.

This is in line with the policy formulated for the consolidation of RRBs, which requires a sponsoring bank having more than one RRB in a State to consolidate all the RRBs under it into one. The Karnataka government has given the no-objection certificate for the merger. Under a pilot project, four of the RRBs sponsored by us in Karnataka are being consolidated into one. The date of amalgamation of the Karnataka Vikas Grameen Bank will be the date of notification and publication in the government gazette. There is a lot of synergy if seven or eight grameen banks in contiguous districts come together and have one identity. The government has mandated that the sponsor bank should be the same; the grameen banks should be from within the State and from contiguous districts.

Does Syndicate Bank continue to have its moorings in the rural sector?

Yes, and it is not out of compulsion but out of conviction. Today, money is moving to the rural areas. The old perception that lending to agriculture or to small businesses is fraught with risk is a thing of the past. We offer every service that suits the financial requirements of the rural customer - retail or agriculture lending, or saving. A large number of our educational loans are from the rural sector. In the case of agricultural finance we have appointed a large number of agriculture extension officers who help carry the message of technology upgradation in agriculture to the rural masses.

But it is not just the rural sector that we are concentrating on. We have a pan-Indian presence and are strong in corporate, retail and priority sectors. Advances to women beneficiaries stand at 7.05 per cent, which is above the mandatory 5 per cent. In agricultural lending, we have maintained the 18 per cent mandatory limit despite a spurt in our funding to infrastructure projects and our priority lending stands at Rs.12,098 crores, which is 47.55 per cent of net bank credit.

But the bank's net profits dipped during the last financial year...

This was owing to the fact that during the third quarter of the last (2004-05) financial year we had to book a depreciation of Rs.383 crores. As per Reserve Bank of India guidelines we had to transfer Rs.383 crores from `available for sale category' to `help for maturity category'. However, during the first quarter of the current financial year (2005-06) our net profits are at Rs.163 crores, up from the Rs.78 crores we had recorded during the first quarter of 2004-05.

Has the Securitisation Act helped the bank recover bad debts?

Yes, it has helped. The posting of the notices (as per the Securitisation Act) is itself seen by many people as a social taboo. After the Act, nearly 80 per cent of defaulting borrowers have come forward to pay up. Defaulting borrowers have realised that they can no longer hoodwink the bank. As per the Act, we take legal possession though we can't physically occupy the defaulting debtor's property. Recovery proceedings are governed by a matrix laid out by the bank's Board, which takes into account the availability of security, its valuation, the guarantors net worth, how much money is to be recovered, and so on. Last year we were able to recover Rs.363 crores of NPA [non-performing assets] in cash. Fence-sitters are coming forward to pay because of the Securitisation Act. This has helped bring down our NPA to 1.41 per cent or, in absolute terms, by Rs.150 crores as of June 2005.

Syndicate Bank's credit offtake has been better than the industry average. What are the reasons for this?

Last year was the second best year ever for credit growth in India and the bank saw a 33 per cent growth. This is because we are present in the metros, urban, semi-urban and rural centres and each of these has scope for business. The bank has seen growth across the board: Metros and urban centres tap corporate and retail customers, rural branches have their hands full with agricultural advances, while those located in semi-urban areas have seen good growth from small and medium enterprises. Our well laid out policy on evaluating a proposal, rating a borrower (especially those in the category of the Rs.10 lakhs and above) and ensuring a timely decision has also helped us garner business. The rating of a borrower has not only helped us decide whether to take an exposure on not, but also to take on a large number of clients, thereby spreading our risks.

The Government of India's holding is quite large in your bank...

We have brought it down from 73 to 66 per cent after our recent public issue. It is still high basically because we have decided to only raise the capital that will take care of our requirements in the next three to four years. There is no point bringing down the government's holding to 54 - 51 per cent. Our current capital adequacy at 12.65 per cent is sufficient to take care of our requirements, including for Capital II requirements. Capital adequacy has to come from public issues, Tier II capital - we have taken Rs.500 crores - and from internal accrual. While Tier II capital is costly, internal accrual is the most important since it is a permanent feature. Because of the government's 66 per cent holding, the bank is in a position to go for another three rounds of public issues, or Rs.150 crores in real terms.

The bank's operational costs are higher than those of other nationalised banks. What steps are you taking to bring it down?

Yes, it has been high even though nearly 30 per cent of our staff opted for our Voluntary Retirement Scheme in 2000. In a bid to reduce cost of operations we want to, as part of our expansion plans, use our excess staff for recovery and marketing duties. The Rs.363 crores that we recovered last year - it constituted nearly 25 per cent of our NPA - was also because we deployed a large number of our employees for recovery operations. We have deputed many of our employees to market our insurance products. Also, we also fill up only 20 per cent of the posts that fall vacant owing to retirements or promotions. These measures are helping: while three years ago for every Rs.100 that was earned Rs.27 was spent on salaries, today it is down to Rs.23. It should come down to Rs.16-18 by 2007-08.

There are a very high percentage of government securities in your bank.

But that has been considerably reduced. Between June 2004 and June 2005 it has declined by 35 per cent. Since January 2005 the bank has exited government securities to the extent of Rs.5,500 crores. The bank had gone for bulk deposits during February/March 2004 since at that time the incremental credit deposit ratio for the bank was 205. Last year we utilised much of our requirements for credit from these government securities. At present the excess SLR is only to the extent of Rs.2,000 crores. And our treasury is also well insulated against any upward movement of the benchmark rate.

Most banks have also seen a decline in their spreads. What would you attribute this to?

Basically it is because of competition. Earlier it was a sellers' market; today it is a buyers market. Syndicate Bank has been able to maintain spreads but under pressure. We are [trying] to make this up by volumes. We are also going in for more non-fund-based activities. We are also expanding our presence in the sector of corporate financing.

Five years ago out of every Rs.100 of advances only Rs.20 went towards corporate financing; today it is Rs.30. We are also giving greater emphasis to infrastructure lending where non-fund limits are much higher. Our bank insurance products last year earned us a profit of Rs.8 crores. We are also contemplating core selling of mutual fund products and have applied for permission to fill the income tax forms of customers, and for the starting of BPO (business process outsourcing) centres.

BPOs?

Yes. Our surplus manpower - since staff requirements at the branches will reduce after core banking - and space can leverage our BPO operations. If I can recover staff costs, the BPOs will be competitive. Our BPOs will not be high-end centres but they will be involved in back office support work both for us and other banks; calculation of cash transactions and fringe benefit taxes; rating for Basel II norms, and so on.