This [RBI waiving off NEFT and RTGS charges] will give an impetus to promote digitalisation. If we want more transactions other than cash, the customer should not be charged. It is a good call. Now, the banks will have to take the decision. The spirit should not be violated. I would not be able to comment on every bank. But as a head of Allahabad Bank, I think the customers should not be charged. Even if banks charge Re 1, it is still a cost.
Edited Excerpts:
What are the systematic changes that is undertaken after rough few years?
The Reserve Bank of India (RBI) had imposed Prompt Corrective Action (PCA) on 11 banks, and Allahabad Bank was one of them. It was the last bank to come out of PCA.
Last one year has been a tough year for the bank as there were challenges in terms of recovery as per the MoU commitment signed with the government of India, attempting to preserve the capital by controlling risk-weighted assets, looking at any opportunities for lending in order to increase the operative part, etc.
While we were able to control the risk-weighted assets within the limit of MoU commitments, there were stress related to slippages. The recovery was good too, but again the slippages were high until third quarter which was led by large corporates.
In third and fourth quarter, we had seen slippages in retail and MSME segment in FY 2018-2019. Simultaneously, we were working towards strengthening internally and creating a plan for future, as to when the bank can come out of the negative or break even.
Our plan is to break even by June 2019 that is in FY 2019-2020. Meanwhile, we were continuously engaging with government of India and RBI.
As a result, the Indian government gave us a capital in three tranches— Rs 1,790 crore, Rs 3,054 crore and Rs 6,896 crore. As a result of this infusion, RBI took Allahabad Bank out of PCA.
In order to look forward, it was important for us to understand our weakness and strength, and in creating a change internally. From April 1 onwards, we started an internal transmission project called ‘Navodaya’.
Under this, we have five pillars such as customer-centric approach, human resource management, asset quality, management control and compliance, and products and services and delivery.
Under customer-centric approach, we have identified large-, middle- and small-level corporate branches separately. We have identified agri-investment credit other than crop loans.
We have identified 32 branches for delivering agri-investment credit for projects like poly house, green house etc. We are looking at specified lending in agriculture. In total, we have around 3,229 branches.
We have started processing centres. Branches will have the permission to handle loan proposals up to Rs 5 lakh. Exceeding Rs 5 lakh, processing will take place in the centres.
About 650 staff in 53 locations will be completely handling retail and MSME loans of 3, 129 branches. This also is operational by the end of April.
There was some level of slowdown in the bank as it went under PCA. How do you see that hurt business of the bank?
I will not use the term slow down but I would rather say restricted approach. We did not go for high increase in deposit, otherwise we would have high liquidity but we have increased Current Account Savings Account (CASA). Due to this, our cost of deposit has come down. PCA had positive side too.
Even today, despite being out of PCA, we follow a restricted approach and in our mindset, we are still under PCA. We do not want to think we are out of PCA.
Presently, due to re-capitalisation, we are out of PCA. So there is lot more to be done such as strengthening our balance sheet and bringing in real value, which is why we have a restricted approach.
Our efforts will be seen in the upcoming financial year. So, we are confident that from Q1 of 2019-2020 onwards, we should be breaking even.
How do you see RBI changing repo rate and changes in leverage ratio helping banking sector and especially Allahabad Bank?
Prior to recent RBI announcement, the leverage ratio required was 4 per cent. After capital infusion, we stood at 4.57 per cent. So we are satisfied with that.
As per the recent RBI announcement of leverage ratio, we see this as good for the bank. At this point of time, we would like to maintain our leverage ratio and take cautious steps ahead. The year 2021 will be a much better year for us.
In case of transmission of RBI rate cut to borrowers, every banker will be considering it. But RBI changing outlook to accommodative from neutral stance is a good move. RBI waiving off NEFT and RTGS charges impacts end consumer. Would we see
Allahabad Bank reducing or cutting charges?
This will give an impetus to promote digitalisation. If we want more transactions other than cash, the customer should not be charged. It is a good call. Now, the banks will have to take the decision.
The spirit should not be violated. I would not be able to comment on every bank. But as a head of Allahabad Bank, I think the customers should not be charged. Even if banks charge Re 1, it is still a cost.
Allahabad Bank’s CASA has improved this quarter. Would that improve
further?
At the end of March 2019, our CASA is around 48.8 per cent and it is second in the banking industry. We definitely are confident of holding on to that.
What is Allahabad Bank’s exposure on non banking financial companies (NBFCs)? Do you see crisis looming there?
Like other banks, we also have exposure but it depends on the composition. Not all NBFCs are under stress. Only few NBFCs are in trouble and that is mainly due to the asset liability mismatch. There are many NBFCs that are backed by reputed group companies. Such NBFCs are not stressed.
If we talk about stressed NBFCs such as DHFL, our exposure is around Rs 150 crore. It is restricted exposure, we do not see any issue and do not foresee any trouble in this area.
Including housing finance companies, our exposure to NBFCs stand at Rs 17,000 crore. There are big companies in this including government companies. It is a pretty good portfolio.
Credit rating agency has been questioned due to bad loan mess. How do you see it?
Due to bad loans, mainly IL&FS crisis, credit rating agencies are questioned. But one has to keep in mind that IL&FS has got multiple companies and special purpose vehicles under it, and every company has different rating structure.
IL&FS has faltered and so rating agencies’ approach is questioned. As a banker, we are concerned about the issue as my risk weightage changes. We undertake rating from two agencies. We insist on two agencies and still there is not much impact.
We hope more regulations are imposed on agencies and there will be more prudence by the rating agencies.
What is Allahabad Bank’s exposure to IL&FS?
Our exposure in Rs 1,225 crore. In that, around Rs 840 crore have already been identified as a non-performing asset. Then there is a Rs 400 crore portfolio which is standard and there recovery is possible. We do not see any issue there at the given point of time.
How many cases has the bank filed so far in National Company Law Tribunal (NCLT)?
All together, we have 156 accounts (taken to NCLT) and the amount involved is Rs 18,000 crore. (The accounts are based on three to four categories like RBI first list, RBI second list, bankers filing cases and Allahabad Bank filing cases.)
Here, there is an advantage. About 90 per cent of the cases are provisioned and that will not impact my balance sheet whatever be the decision in the tribunal.
Cases such as Essar, Bhushan Power, etc are stuck. We are hoping Bhushan Power to take a logical end soon. We anticipate closure of four-five accounts, which is worth Rs 2,200 crore, (under NCLT) before June 30, 2019. By the end of FY 2019-2020, we expect NCLT cases will bring about Rs 4,000 crore back to the bank.
What kind of growth have you seen from non-core banking services such as selling of insurance?
Allahabad Bank’s joint venture is already there in terms of non-life insurance. For life insurance, we have tied up with LIC and SBI Life. We recently tied up with SBI Life and we have seen good business in three months’ time from this. We will see a good turnover coming from insurance by end of current financial year.
What are the developments in merger talks?
That is the government’s domain. We are also expecting one more merger. We will have to wait and see which banks will be merged. Going by the discussion that is taking place in the market, consultation process is going on.
Today, the cost of compliance and creating products and services for the banks are proven to be problematic to smaller banks, but big ones can handle it.
So such mergers are definitely a good sign not just for the banking sector but for the economy as a whole. We do not need 19-20 organisations doing the same business in the same premises.
Will there be job loss going forward?
Every year there are around 1,000-2,000 people that would retire from the bank and we are not replacing them. So, there will not be employee cut down as we already have less employees.
