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Syndicate Bank takes the high road

Having staged a breath-taking turnaround in four years, it has set an example that other troubled public sector banks could follow.

By Dilip Maitra

The call came at around 8:00 p.m. on a balmy day in the last week of April, when K.V. Krishnamurthy, Chairman and Managing Director, Syndicate Bank, was listening to carnatic classical music in the reading room of his official residence at Manipal. It was one of Krishnamurthy's friends who had called from Delhi to say that he might be moved to another ailing nationalised bank. Though surprised, he was not overly disturbed. For, Krishnamurthy has turned around Syndicate Bank, with an accumulated loss of Rs 1,003.77 crore in 1996-97, into a robust institution in less than two-and-a-half years. As it turned out, over three weeks later Krishnamurthy was appointed as the CMD of Bank of India.

A chartered accountant from Madras, the 57-year-old Krishnamurthy has been a professional banker for the last three decades. He came to Syndicate Bank in December, 1997, when it was carrying an accumulated loss of Rs 1,000 crore and had made a small net profit of Rs 20 crore in 1996-97 on a total business volume of Rs 15,553 crore. Its net profit margin was a tiny 1.30 per cent and employee productivity as low as Rs 53 lakh an employee, or one-fourth that of the best public sector banks. After taking charge, Krishnamurthy found three basic problems: huge employee overheads, poor work culture, and inertia. Says he: ''The first thing to strike me was low employee morale; no one knew where the bank was going, and it was overstaffed.''

As a first step, Krishnamurthy stopped recruiting, slashed the workforce by 2,777, and earmarked nearly Rs 150 crore for a voluntary retirement scheme. The reduction, along with a 75 per cent jump in business volumes to Rs 27,280 crore in 1999-2000, caused the bank's employee productivity to double to Rs 106 crore and reduced the ratio of staff cost to gross income from 68 to 54 per cent. As a reward, new posts were created and around 3,000 people given promotions.

A quick payback

In the three years since Krishnamurthy took over, the bank's profitability has jumped sharply. At the end of 1999-2000, Syndicate Bank's operating profit was Rs 347 crore (up 87 per cent from the previous year) and net profits, Rs 237 crore (up 66 per cent). Net margins rose to 8.56 per cent (1.3 per cent in 1996-97), while the business per branch rose to Rs 16.02 crore (Rs 11.40 crore) in 1998-99. This got reflected in BT's Best Banks survey (see, The Banks' Scoreboard, BT, November 7-21, 1999), where Syndicate Bank moved up from its rank of 77 in 1996-77 to 49 in 1998-99. Says the CMD of a south-based private sector bank: ''Syndicate Bank's turnaround has made it clear that with the right strategies most weak public sector banks can become viable.''

In the last three years, India's banks have had a tough time: slack offtake, rate cuts, flight of deposits to mutual funds and competition from private banks.

Besides reducing overheads, the bank cut deposit costs by switching to low-cost funds coming from savings and current accounts. The bank leveraged on its 1,702 branches and introduced products like the Kisan Pragati Schemes, and Senior Citizens Schemes. The proportion of low-cost deposits rose from 36 per cent in 1996-97 to 41 per cent in 1999-2000. Explains B. Pramod, 51, general manager in-charge of resources: ''We have 3,000 agents who collect deposits from small investors. Our current year's target for low-cost deposits is 43 per cent.''

Banking on credit

Syndicate Bank's advances more than doubled to Rs 12,212 crore in 1999-2000 from Rs 5,397 crore in 1996-97. This, it achieved through a two-pronged strategy: speedy evaluation and sanctioning of loans at branch level, and computerisation. Points out Krishnamurthy: ''We have set a seven-day appraisal limit for branch managers and a three day one for the head office.''

Computerisation helped, with 655 branches generating 80 per cent of the bank's total business. And while expanding business, the bank focussed on high credit-worthy clients. Loan recovery was made a priority too. Result? Non-Performing Assets (NPAs) levels fell to 2.60 per cent in 1999-2000 from 8.39 per cent in 1996-97. Even in the priority sector, which guzzled 47 per cent of the total credit in 1999-2000, the bank did well. Of the 10 regional rural branches, eight made profits and contributed 33 per cent of its Rs 347-crore total operating profit.

Yet, there's room for improvement. Compared to Corporation Bank, the best bank in BT's 1998-99 ranking, Syndicate Bank has a long way to go. Its employee productivity, at Rs 1.06 crore, was 44 per cent lower than that of Corporation Bank in 1998-99, while its net margin at 8.56 per cent, was 3.80 points lower. And its NPA level was 31 per cent higher. Krishnamurthy's successor will have to live up to these benchmarks. But it may not prove to be too tough a task given his predecessor's legacy.


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