Q. What are the key challenges before the Indian banking industry? And what measures should be adopted by the regulators and Banks to overcome them?

A. Monetary Policy has helped to lower interest rate and this is expected to act as a powerful stimulus for putting the economy back on the path of high growth. Lower interest rates on deposits may not hinder deposit growth because inflation is under control. Continued sluggishness in current deposits is a cause for concern. However interest rates cannot get very much lower than the prevailing rates because economy is projected to grow at about 7%. Secondly monsoon is playing truant and this is a matter of concern for economic growth this year. Retail prices are not coming down faster compared to wholesale prices and large liquidity available in the system may fuel inflationary pressures. In fact WPI itself is beginning to rise recently. Even internationally the problem of rolling back policies that pumped liquidity into the system has already surfaced. In these circumstances, reducing interest rates sharply may not be possible. Stability in rates and adequate liquidity will provide support to the real economy.

But in spite of these favourable conditions, credit demand is not encouraging. When lending rates were higher last year, demand for bank credit was at its peak. So lending rate is only one aspect of credit demand and lower rate by itself may not stimulate it. Secondly, credit is only one factor in business growth and unless demand for goods and services picks up significantly in domestic and export markets, credit demand cannot be sustained. In India domestic demand may not be a constraint, but export markets seem to remain sluggish. Global economic revival may stimulate further growth in Indian economy leading to greater demand for credit. As for banks, they face capital constraints, rising NPAs and high cost deposits contracted earlier and these affect their ability to reduce their lending rates substantially. Deposit rates have come down significantly and they cannot go down further because of inflation factors discussed above. BPLR is set to undergo some changes with the new Working Group in place. The recommendations of the Working Group on BPLR may be given effect from next year. Relaxation in capital and NPA norms will be helpful to banks.

Q. W hat are the key growth drivers for the Indian banking industry? What are the emerging trends in the Indian banking industry?

A. A growing economy provides the basis for vibrant growth in banking sector. Credit demand needs to pick up strongly from various sectors and the banks, as we saw above, are in a position to meet it. Focus is now shifting to manufacturing sector for economic growth and we are traditionally geared towards financing this sector. Union Budget now announced is expected to create a favorable environment for growth in personal and housing segments. Banks would take advantage of such a trend and cater to these segments. Technology is emerging as a major factor in banking industry in recent times. Branch banking is getting substituted in a limited way with transactions through other channels like ATMs. Debit cards are growing faster along with ECS credits and debits, thus replacing to a significant extent paper-based funds transfers. Financing personal segment has gained prominence in the recent period. Banks have diversified into areas like Mutual Funds, Insurance, etc. to augment their fee income. Greater overseas expansion is also taking place with globalisation advancing in the real economy.

Q. Do you believe that there is a need for consolidation in the Indian Banking industry? What according to you are the merits and demerits of consolidation?

A. There is need for consolidation in the Indian banking industry as it facilitates scale economy, besides avoiding duplication of efforts. It also enables greater expansion of business with stronger balance sheet. But consolidation of banks in our country is very complex since we have branch banking model. Even a bank of modest size has a few hundred branches which need to be rationalized when the merger takes place. Secondly, our banking is labour intensive even with higher level of automation and it flows from the branch model. Creating a single organisation by merging two entities in this scenario is a tough task. Transitional problems posed by large number of branches and work force have been tackled in the past and it can be undertaken, if the situation demands. However greater flexibility needs to be enjoyed by banks while the process of merger/take-over takes place.

Q. What role does technology play in your bank in terms of enhancing customer experience, and improving functional efficiencies?

A. Information Technology has evolved as the driver of business growth from its role as an enabler of Business Growth. The bank has introduced various innovative and customer centric IT products. The Bank has provided Automated Teller Machines (ATMs), Internet banking, Any Branch Banking (ABB), Centralised Banking Solution (CBS), Insta cards (nonpersonalised cards that are issued to customers at the time of opening of the account) , RTGS/ NEFT, SMS alerts etc. We are constantly striving to introduce innovative products that meets the rising expectations of the present day customers. Our bank is setting up an Internet Payment Gateway (on ASP Model) . Initially our bank’s debit cards will be accepted. We expect the Gateway to go live shortly. These along with other technology initiatives afford flexibility of time and reach and enhance the richness of customer experience.

Q. As an aftermath of the global financial crisis, do you see an alarming rise in NPAs for your bank? What are the sectors where you think NPA levels may rise phenomenally?

• The slippages may be on the same levels as that of last year.
• Real estate sectors may contribute higher slippages. If the real estate market does not improve it may affect Cash Recovery also, as sale of immovable property may be difficult in a depressed market.
• Slippages are also expected from non payments of Farmers’ share of Agricultural Debt Relief.
• Massive restructuring was done in the year 2009-10. A part of it may fail to non adherence of revised repayment programme. The budget reliefs may have a bearing on the improvement in the Cash flows.

Q. What initiatives has your bank undertaken in the areas of Micro finance, Financial inclusion etc?

A. Micro finance

Our Bank is actively participating in the SHG credit linkage programme.

Year 2008-09:

Bank has credit linked 64294 SHGs with a financial assistance of Rs. 7892.5 bn as against a target of 50000 SHGs. Cumulatively our Bank has so far provided financial assistance of Rs. 21626.8 mn to 292,507 SHGs.

Current Year 2009-10:

Upto May 09 (2 months) Bank has credit linked 2,964 SHGs with a financial assistance of Rs, 34.59crores as against a target of 50000 SHGs. Cumulatively our Bank has so far provided financial assistance of Rs. 2197.27 crores to 295471 SHGs.

Janashree Bima Yojana (JBY):

To provide insurance coverage to women members of SHG, our Bank has entered into an MOU with LIC to implement Janashree Bima Yojana (JBY). JBY is a social security scheme giving insurance coverage to the rural and urban poor living below poverty line. During 2008-09, our Bank has covered 84456 women members belonging to 8074 SHGs under Janashree Bima Yojana (JBY).

Financial Inclusion

No-frills Accounts & General Purpose Credit Cards (GCC):

As per the guidelines of RBI, our Branches have started opening no-frills accounts with simplified KYC norms. Our Bank has simplified SB account opening forms to facilitate opening of accounts as a faster pace. During the year 2008-09 our branches have opened 728894 no-frills accounts. Cumulatively our branches opened 931711 no-frills accounts upto May’ 09. Savings mobilised through these accounts is Rs.37.71 crores. Our Bank has issued 21317 GCCs till date.

Engagement Of Business Correspondents (Bc) And Business Facilitators (Bf):

With a view to accelerating the pace of financial inclusion our Bank had started engaging BC and BF in tune with RBI guidelines. Our Bank has engaged 3 Business Correspondents.

Smart Cards:

Banking services are being extended to villagers at their place through Bio metric Smart cards. Smart card banking is undertaken on a pilot basis at Kuthambakkam and Kameshwaram villages. 1609 smart cards were issued so far in both villages.

Road map:

To expand smart card banking solution for greater inclusive growth, our bank is in the process of selecting Technology / Service provider. Our bank will cover 100 branches under smart card banking before March 2010 and @ 100 branches per year for the next 3 years.