Career bankers, especially those in public sector banks (PSBs), usually learn to cope with the challenges of a new job and a new city or mofussil town early on in their work lives. So, it is no surprise that Kamlesh Chandra Chakrabarty is sitting pretty in his new role as Deputy Governor of the Reserve Bank on Mint Street in Mumbai. He knows how to do a good job and move on. The Delhi-based Punjab National Bank (PNB) that he was heading for two years till June has vaulted 15 places in BT’s list to #3 on the back of a sound core business performance.
His successor at the bank, K.R. Kamath, is happy that he is steering a stable ship. The 114-year-old bank, which has an extensive network (4,525 offices) all over the Indo-Gangetic Plain, has, in recent times, proactively set the benchmarks for the industry. “The cost of funds for PNB has traditionally been low due to its large network. Our latest current account savings account (CASA)-deposit ratio is among the highest in the sector. There is a difference of at least 75 basis points in our loan rates and those of any other bank,” says Kamath. As a result, its key stakeholders are happy. Customers get the lowest home loan rates, while business analysts cheer its high loan loss coverage— at 91 per cent in the most recent quarter, it is the highest in the industry. “PNB’s strength has been loans to agriculture sector, small and medium enterprises and retail—all through improved delivery systems,” says Chakrabarty.
PNB is not the only PSB that ended up shining in our survey. The BT-KPMG ranking for 2008-09 has three other PSBs among the top six. The biggest reason for the upswing in the fortunes of the PSBs has been handsome growth in fee-based income, a marked improvement in return on assets and return on capital parameters, and improved asset quality, believe KPMG experts.
Treasury gains, too, have contributed to their performance. But much of the shine has come from the fact that during the second half of the last financial year, when many private sector banks virtually shut shop, the public sector banks were seen as the last men standing to support loan seekers—corporate and retail. Says Viren Mehta, Director, Ernst & Young India: “As the financial crisis hit... people felt parking their money in PSBs is a safer option.” The strength of the PSB, adds Chakrabarty, comes from government ownership, their widespread network and their vast customer base.
Another PSB that showed an incredible performance is Bank of Baroda (BoB), which climbed up from #13 to #4. Says Chairman & Managing Director M.D. Mallya: “Technology and a clear focus on customers have enabled us to drive business growth. We want a larger share of the customer’s wallet.”
The bank’s calibrated approach towards balance sheet expansion with a keen eye on profitability and asset quality garnered gains for this bank which ranks among the top five in the country.
Growth at a cost
However, business growth for some banks may well have come at a cost. For instance, Bank of India (BoI), which has slipped a notch from its numero uno position in the previous BT-KPMG study, has, in the second quarter of the current financial year, shown an over 57 per cent drop in net profits due to deteriorating asset quality. That trend is not reflected in the rankings (which are based on last fiscal’s numbers).
“The key highlight of the (secondquarter) results was the sharp deterioration on the asset-quality front—a trend that could remain an overhang in the coming quarters. BoI was growing its loan book at 10-15 per cent above the average industry growth. The bank has to account for incremental slippages of Rs 2,007 crore as a result of the poor quality of its book. The management has guided for at least Rs 1,000 crore of further slippages over the next two quarters,” says Vaibhav Agrawal, a banking analyst with Angel Broking, who recently penned a report on BoI’s latest quarterly earnings. BoI has probably the highest exposure to small and medium enterprises amongst its peers—around 17.5 per cent. The gross and net non-performing asset (NPA) ratios deteriorated to 2.61 per cent and 1.08 per cent, respectively, for the second half of the current fiscal.
BoI may well be an aberration in the PSU pack. Another bank that moved up—two spots from #6—is Indian Bank. That climb was aided by a steady growth in loans not just in 2008-09, but over the previous three years as well. This coupled with a sharp focus on costs and a tight leash on NPAs helped Indian Bank’s performance. That good show seems to be spilling into the current fiscal. Net profit for the July-September quarter was up 31 per cent.
Mangalore-based Corporation Bank was another PSB to move up the charts, to #8 from #10 in the previous study. At 32 per cent, its cost-toincome ratio is one of the lowest and business per branch and per employee one of the highest. While the bank’s net interest margin (NIM) has been on the rise to reach 2.3 per cent in the latest quarter, its net interest income jumped 23.8 per cent to Rs 504 crore year-onyear. “Our net interest income is one of the best in the industry. We have sustained our growth,” exults Chairman & Managing Director J.M. Garg.
A PSB that’s turned around remarkably is Canara Bank. It hasn’t made it into the top 10 but has done well to gain some lost ground by recovering from #26 in the 2007-08 study to #14. “Our major challenges now are sustaining the growth momentum in business and profitability parameters in the context of an increasingly difficult banking environment,” says A.C. Mahajan, the bank’s CMD. The focus, he adds, will be more on spread management and improving asset quality.
Mahajan has clearly sensed the challenges that are around the corner. PSBs may have gained in public perception on reliability in the past year, yet they have their task cut out to retain their top slots in the years ahead. As Chakrabarty says: “PSU banks need more autonomy in ensuring highest standards of corporate governance and also to attract and retain the best talent.” Truly, only then can the performance of these banks sustain.
Additional reporting by K.R. Balasubramanyam