`We plan to push our retail lending'

Canara Bank, which has a 25-million strong clientele base, pushed its return on investment (ROI) to 1.24 per cent during the last financial year. (Any figure above 1 per cent is considered internationally the hallmark of a successful bank.) The bank anticipates an overall growth of 19 per cent in the current financial year. The man who has spearheaded the bank's foray into hitherto unchartered waters, such as housing (business worth Rs.1,586 crores in 2002-03), with spectacular results, is its Chairman and Managing Director R.V. Shastri. Excerpts from an interview he gave Ravi Sharma.

Has the credit offtake in the banking industry been bad?

I won't say that. Ours has been good. We had an offtake of 22.17 per cent during 2002-03. Some industries, for instance steel, cement and to some extent textiles, are doing okay. Over the years the banking sector has excluded the service sector, although it contributes up to 55 per cent of India's gross domestic product. But during the last two years, banks like Canara Bank have gone into retail lending with good results. Retail banking accounted for 32 per cent of our offtake in 2002-03, and went up by 71 per cent year on year from Rs.3,334 crores to Rs.5,685 crores. Our retail banking portfolio was 14 per cent of our total credit portfolio in 2002-03 and we hope to push it to 20 per cent this year.

What are the chief areas of focus in retail banking? Until a few years ago Canara Bank was not active in the home loans market.

Housing, personal loans, retail trade, education, hospitality trade... It has been driven by the home loans segment. We were not in the housing sector until I started it in 2002 since the field (for home loans) is so vast. During 2002-03, our home loan business was Rs.1,586 crores (around Rs.300 crores more than that of the bank's subsidiary Canfin Homes ), up by 108 per cent over the previous year. The delinquency in this segment is 1 per cent.

The cost of funds have come down and the margins that banks have to work with have shrunk. How do you view this new situation?

There is a pronounced pressure on margins, we feel it continuously. As I see it, banking is today a volumes game and there is enough potential. Given that both banker and borrower are heavily into cost cutting and margins are thin, in the new global and domestic banking environment, you have to have volumes. There is also pressure on fee-based income (service charges). Customers are looking for a fee of 0.25 per cent, down from the earlier 1 per cent. This will mean a further drop in yields.

What measures are being taken to maintain growth?

We are into a massive cost reduction exercise - keeping our operational costs under control. We have brought down the cost on deposits to between 7.16 and 6.32 per cent. We would like to maintain it at 6.25 per cent. We also want to improve yields and for this we are trying to push up our forex operations (the bank earned a profit of around Rs.130 crores in 2002-03), increase our credit card base to 500,000 customers from the present 300,000, launch a debit card by September and increase our position in the insurance business. We have already tied up with Aviva Life Insurance and more than 50 of our branches are already handling their products. In the forex business we have already diversified into interest rate swap and the derivatives market. We are putting in place a portfolio analysis system, manned by 1,000 people at both the circle and head office levels, to track delinquency. This risk mitigation technique is a must, considering that we add a huge number of accounts every year. Also, our future profit lies in recovery.

One of Canara Bank's fortes has been the bonds market. But are interest rates not falling?

Yes, the rates are falling, and naturally the incremental interest is also coming down. But the trading has increased and, as I see it, the secondary market has deepened. We have by and large sustained our profits from treasury business.

Will the proposed one-time debt swap (where the Government of India will take over some of the bad debts that are owed by State governments to public sector banks) help Canara Bank?

Canara Bank will definitely take advantage of this. We hope it will come in this year.

Has the Securitisation Act, which allows you to attach the assets of a defaulter, helped?

It has helped in that more and more borrowers are coming in for a settlement. But the Supreme Court stay in the ICICI Bank vs Maradia Chemicals case means that we can seize but not sell the assets. This has somewhat slowed down the process of recovery. It has thwarted us. But banks ought to create an infrastructure to take advantage of the Act. At Canara Bank we have created internal seizure cells. We are looking to some professional agencies to seize and sell recovered assets from defaulters. We are also looking forward to the Asset Reconstruction Company to be put in place.

Is the bank planning any acquisition?

Now that our initial public offer is over, we are looking for any opportunities that might be available.