Ramnath Pradeep does not mince words. The Chairman and Managing Director of Corporation Bank is as frank as he is clear on issues that many others would rather side step. On a visit to Mumbai last week, Pradeep sat down for along interview with Business Editor Jagdish Rattanani.
Looking at the current environment going into the monetary policy, what are your aspirations from the RBI this time?
Today the customer is not comfortable. Interest rates have reached a saturation level. Ultimately, when interest rates rise, it is the customers who pay. Rate hikes ultimately are passed on to end customers. When we talk of inflation, if I increase rates today, it will reflect in the end price tomorrow. The situation is very fluid and it is like a chicken- and- egg – which comes first is a question. As a banker, I feel today there is need to pause. Today when we are projecting growth of 8.5 %, inflation is killing the growth. Now if you kill inflation, growth will also be affected. So you have to keep inflation in check and at the same time you have to also see that growth is not killed or else everything will be hit.
But the basic argument is that inflation is persistent, generalised, not being reined in, and now monsoons are reported in deficit and the fuel price hike is not still reflected in inflation numbers…
At a mental level, and a people level also, we have to understand that we have to live with inflation to some extent. I do say common man is suffering but common man is also suffering when input costs rise, and from the increased cost of bus and truck fare, so how will you control inflation only by raising the interest rate? I am saying interest rates alone will not control inflation. Today, banks’ base rate is peaking at 10.5%. Now, how many people can take 10.5 and rates are above that?
You think it’s time to pause, and will RBI heed that?
I feel it is time to pause; whether they will heed that or not is not in my area as they are in a position to judge. I can only request that this will not help the common man. It will slow down growth.
It was you who said in a speech in the presence of the finance minister that inflation is expected to continue its uptrend. What is your outlook on inflation now?
I think inflation will be with us but may be not with the same severity. I think we will see some moderation but the question is whether it can come down form double digit to levels of 6% by March 2012. I have doubts if it can come to that level. I think 8% is achievable. This is the time the country will have to learn to live with this level of inflation because input costs have gone up. How do you expect production costs to come down?
Only yesterday the government scaled down the growth projection to 8.6% from its earlier projection of 9%. What does that tell you of the state of the economy and how are you seeing that in your banking activities?
We also feel the slowdown. The important sector of infrastructure is slowing down. The roads sector was growing but projects had an IRR of 11%. Now if the cost of funding is higher, how will that project survive? So ultimately it will impact every industry. The result is a slowdown. Even in telecom, which was a growth sector, the 2G scam has had a cascading effect and no banker wants to lend to the sector.
How do you see outlook for growth?
We are projecting a growth of 25% as of March 2012. Last year, we had 37% growth. Credit growth is not a big problem because we are into the mid- sector. Mid corporate is giving me yield of 12%; though the risk is higher but returns are also high. My NPAs are the lowest. My medium sized yield is 12% whereas large industry gives me a yield of 10.5, a difference of 150 bps, which is huge. So this year my concentration will be mid- sized corporates. A bank of our size must concentrate on MSMEs, agri and retail side because retail is growing very fast. A target of 22%- 23% in savings and 25% in advances is moderate. It is achievable growth. This year total business will be Rs. 2,65,000 crores.
You announced a big push towards CASA?
Our CASA is 25%, the average CASA is about 30%. We are projecting 200 basis points more this year. So we have launched new products to achieve this. From 4.5% we jumped to 7% on short term rates. We have special schemes like a ‘Nano’account ( with little or no fees), a RD scheme and others. We are going to launch in a big way with tight monitoring and with fixed targets – zone- wise and branch- wise. Even if I pay 7%, my cost of funds could be 8.5% whereas when we raise from bulk deposits, I am paying 9.5%. So now with these schemes, I can lend to mid sized for 12% instead of 13%… my customer base will be better, my yield will be better.
You are one among those who have come out to say clearly that the savings rate should not be deregulated and there are a lot of voices saying banks are just ganging up when it comes to the interests of the common person…
See today, look at the subsidisation we do for the common people. Today, still I continue to lend to the agri sector at 9%, I still lend at 4% to BPL families to meet targets, there is a target for minority community, there is SC/ ST funding – these are all subsidised. From where will these subsidies come? It is only from the savings bank. If you deregulate today, you are going to benefit only the private players. We are talking of financial inclusion in the next two years but who is going to bear the cost. Governments are not ready, but the bankers are told to go to the villages. That has to be subsidised. Therefore I am a firm believer that it should not be deregulated. This is not the right time. The right time will come when you are able to reach to the poorest of poor. I think five years down the line will be right time to deregulate so that everyone has the common platform to access a savings account.
You crossed Rs. 2 lakh crore of total business last year and announced a 20% dividend…
I personally felt happy at reaching three milestones. One is reaching the benchmark of Rs. 2 lakh crore, another benchmark was I converted our old house into a museum which has become a landmark. The third is the dividend. Now, the new Chairman who comes will think before reducing the dividend!
There is a CVC order that stops you from awarding tenders for a consultant…
The tender they are talking about is already cancelled. If we are told not to award the contract we will not, but the bank will suffer. We are the only bank not in insurance or a mutual fund joint venture so we need a consultant to handhold us through the process. Everybody has gone through a consultant. Unfortunately, nobody came because nobody wants to come to Mangalore ( the HQ of the bank). If it is Mumbai, one consultant works for five banks; in Mangalore one will work for one bank. So no one wants to go to Mangalore. There are some interested people who want to stall. I don’t want to go into all these issues. But the fact is that today the bank needs Business Process Reengineering, or BPR. Today we are working with the same type of processes we had 20 years back. BPR will save costs. I can’t run with 10 people in every branch. I have to rationalise manpower. So we wanted to centralise. We need a hand holder because this is not our domain. Nobody has understood the requirements of the bank.
‘Bank ho to aisa’is a slogan attributed to you…
How do you judge a bank? our productivity should be high, morale should be high, internal processes should be strong… my dividend payout is 200 per cent, per branch business is highest, per employee business is highest and this has been recognised by outsiders. Customer service is of the highest standard. I have completed financial inclusion goals 15 months ahead of schedule. If I am the best in the industry, why should I not say bank ho to aisa? I am only trying for more excellence. And excellence has no finishing line. We don’t stop… we have to keep on excelling.
