Chanda Kochhar has had a clear roadmap from the time she took as MD & CEO five years ago. The strategy was to re-balance the asset portfolio, grow retail deposits, improve cost efficiencies and asset quality, and maintain a healthy capital position. She seems to have delivered. Excerpts from an interview with Business Today:
Q. THE BANK HAS DELIVERED ON ALMOST ALL THE PERFORMANCE PARAMETERS YOU SET FIVE YEARS AGO. WHAT'S KEEPING YOU BUSY NOW?
A. In an environment like today's, which is quite challenging and volatile, my focus will be on growth and also to keep an eye on key parameters like CASA (current and savings bank account) ratio, operational efficiency with low cost-to-income ratio, better asset quality and healthy capital position. I think sustaining these benchmarks while growing will be our focus. Take, for instance, we have said that we wanted our CASA ratio to be 40 per cent. Now we have to work towards keeping it at 40 per cent. That itself has to be a focus area. I'm actually quite satisfied with this number currently. You know rather than increasing the percentage of CASA, we are actually growing and keeping the CASA ratio the same. This means if we are growing the business at 20 per cent, the CASA deposits have to grow at 20 per cent even if the proportion has to be same. That itself is a healthy mixed bag. In fact, if you look at industry-wise ratio, the CASA is actually going down. So even to continue maintaining the CASA ratio at 40 per cent, or to keep the cost-to-income ratio at 38 per cent or so, to keep credit quality under control, to very optimally utilise capital, I think sustaining these factors itself remains an important priority.
Q. WILL THERE BE ANY BIG CHANGE IN THE ASSET MIX GOING FORWARD?
A. It is a very well-diversified mix with 30-35 per cent share of each of the businesses. There may be some changes in the proportions but not substantial, depending upon which time of the economy what business is growing more. For example, corporate credit in the system is not really growing whereas retail is growing. So automatically retail proportion will increase a little bit more but once the projects start coming back or the corporate sector comes back, the share of corporate credit will increase a little bit. Broadly, the ratio will remain at these current levels. Within retail, the focus is on secured segment, especially mortgages, etc.
Q. IS THERE ANY CHANGE IN THE INTERNATIONAL BANKING STRATEGY?
A. We put capital in the international subsidiaries some five years ago assuming a much higher rate of growth in the entire global economy. As the global environment conditions have changed post 2008, we also calibrated our business model and growth. Growth is much lesser than what it was in the past. There was also a whole lot of excess capital in the international subsidiaries and some amount of capital was brought back recently. In terms of the international banking strategy, the model is now turning more and more towards pure commercial transactions banking rather than being focused on very large investments being funded of just the Indian corporate sector. It has become more granular and more diversified banking kind of a model. The other calibration really is in the rates of growth itself.
Q. RBI GOVERNOR RAGHURAM RAJAN .RECENTLY TALKED ABOUT BANKS OUTSOURCING PROJECT EVALUATION, WHICH IS A DANGEROUS SIGN. ANY COMMENTS?
A. As far as we are concerned, we always do in-house project appraisal. We had a history of project appraisal as we were a development financial institution. In the last few years, there have been learnings for the banking system as a whole. The reality has been very different from the assumptions, especially in the last few years, in terms of the time it has taken for projects to get completed because of delays in certain approvals, or tying up the backend linkages. There have been certain cases of systemic fraud, which the banking system has to take care.
Q. WILL THE RECENT PERMISSION TO RAISE INFRASTRUCTURE FUNDS RESULT IN LOWERING OF COST OF FUNDS?
A. It's very good for asset liability management (ALM) because of the longer nature of the funding source. Currently, banks were funding the longer-term loans with shorter-term funds. This was the bigger thing to handle than the cost of fund. It's a big advantage now. It does bring down the cost of funds, but it's not that large an impact on costs. These bonds today are a small portion of our entire balance sheet. We have raised Rs 4,000 crore funds and even if we double that amount, Rs 9,000-10,000 crore on a balance sheet of Rs 6,00,000 crore is not big.
Q. WHAT WILL BE THE LIKELY IMPACT OF THE RBI'S DECISION TO ALLOW A NEW CATEGORY OF DIFFERENTIATED BANKS LIKE PAYMENT BANKS?
A. The way commercial banks have to respond is to continue to efficiently offer everything, which is not just the payments part but savings, credit and so on. Banks have that inherent advantage of being able to be present across the relationship with the customer. But, of course, this development means that when it comes to payments, banks have to offer or have to be as equal to or if not better in terms of the product they offer and the cost at which they offer.
Q. ANY PLANS TO RAISE CAPITAL IN THE NEXT FIVE YEARS?
A. Five years is a long time to talk about it. The requirement of capital also depends upon the regulatory changes that may or may not take place. We have enough capital to grow if I look at the next two-three years.