 |
| More ATMs than branches:
Corporation Bank's Sambamurthy is using technology
to increase efficiency |
History and social obligations
weigh heavy on most public sector banks in India. It wasn't a big
issue as recently as five years ago when the economy was merely
coasting and not galloping like it is now. But with the economy
expanding at 9 per cent annually and India Inc. drawing up unprecedented
plans for growth, these banks sometimes find themselves watching
the action from the sidelines. There is a natural disadvantage to
constantly looking over your shoulder. "While there is enough
freedom and autonomy in public sector banks, the accountability
format is different. There is no scope for failure in the public
sector," says the head of a leading public sector bank. Add
to it the unionised employees.
Notwithstanding these constraints, some public sector banks
are beginning to cash in on the booming business environment.
It is a trend that is visible right across-from the behemoth on
the street, State Bank of India, to its smaller cousin, Bank of
Baroda. However, the most dramatic and the most effective impact
has been on the smaller banks such as Federal Bank and the State
Bank of Hyderabad. These banks, while not necessarily the strongest
banks, have shown the most improvement in responding to the business
environment. "Banks at the top of the list are those that
have managed to balance the risk-return matrix quite well. It
boils down to strategy and its implementation and they seem to
be getting it right," says Sanjay Aggarwal, Head (Financial
Services), KPMG, which collaborates with Business Today on the
annual Best Banks survey.
Significantly, the total scores of three out of four state-owned
banks in the top 10-Corporation Bank, State Bank of Hyderabad,
and Indian Overseas Bank-are pretty close. While the latter two
have equal scores of 2,167, just two points on weighted score
(2,169) separate them from Corporation Bank at the sixth position.
The fourth player in this quartet, Allahabad Bank, is also not
too far behind at #9.
The narrow gaps in final performance belie huge variations in
individual metrics of these banks. But, then, that probably stems
from the unique operating environment available to each bank and
the strategy that they adopt in implementing it.
Corporation Bank: Process-Focussed
 |
"Although we were
a little late in adopting technology, we are now increasing
emphasis on it"
A.C. Mahajan/Chairman & MD/Allahabad Bank |
Traditionally among the better-run banks, Corporation Bank has
slipped two places to #6 in this year's survey. The bank has been
a mid-performer on most growth and size parameters and that seems
to be intentional. The bank's Chairman and MD, B. Sambamurthy,
agrees that "the bank has been a little selective in encashing
growth opportunities". CorpBank, however, makes up on metrics
related to quality of assets and productivity and efficiency.
Its technology-backed cost structure is quite light and helps
it retain its competitiveness. In fact, at 41.53 per cent, CorpBank's
cost-to-income ratio is second only to StanChart among the banks
having a balance sheet size of more than Rs 20,000 crore.
The bank was an early adopter of technology. "We are probably
the only bank in the public sector space that has more ATMs than
branches," points out Sambamurthy, adding that nearly 55
per cent of the eligible business has moved to the ATMs. The bank
has 935 ATMs and 850-odd branches. And barring a few, most of
the bank's branches are working on the core banking platform.
For now, the focus is on improving processes-processes that help
employees spend "quality time with customers".
Premium products are another advantage that the bank wants to
leverage. It is currently in the process of repositioning its
cash management services among other product offerings. On the
retail side, it plans to offer more capital market services and
payment products. To address the issue of size and scope without
consolidation, it entered into a strategic alliance with Indian
Bank and Oriental Bank of Commerce late last year. The test of
the bank's cautious strategy may come in years when the economy
slows down.
Indian Overseas Bank: In the Fast Lane
 |
"IOB is probably the
only PSU bank that did not go in for a follow-on public offer
in the last two years"
T.S. Narayanasami/Chairman & MD/Indian Overseas Bank |
Chennai-based Indian Overseas Bank gains on size and quality
of assets and earnings parameters and it is no surprise that the
bank has climbed from #11 to # 7. It has, in fact, shown searing
growth in the current financial as well. The growth in advances
is backed by conservative provisioning and tight cost-to-income
metrics. The return on capital employed tops the chart. Chairman
and Managing Director T. S. Narayanasami points out that IOB is
probably the only bank that did not go in for a follow-on public
offer in the last two years and its capital adequacy is still
at nearly 14 per cent compared to the regulatory requirement of
9 per cent. However, IOB's performance is significantly held back
due to a slow deposit growth relative to the industry. That's
true of its fee income as well.
The broad trends so far this financial year are also similar.
The bank has seen business top the Rs 1-lakh-crore mark and it
expects to close 2006-07 with a 20 per cent growth in net profit.
"There is no negative surprise in Indian Overseas Bank except
for rapid growth," says a Mumbai-based bank analyst, pointing
to concerns regarding funding of this growth. Narayanasami agrees
that moderation in credit growth is needed since the credit-deposit
ratio is touching 74 per cent. To sustain and fund this growth,
the bank is considering securitisation of infrastructure loans
along with mobilisation of retail term deposits through quarterly
campaigns. It raised nearly Rs 1,600 crore in October-December
and hopes to mobilise another Rs 2,000 crore in the current quarter.
Allahabad Bank: Cost Competitive
 |
"In the days to come,
deposit pricing will be an important determinant of the bottom
line"
Amitabha Guha/MD/State Bank of Hyderabad |
The 140-year-old bank based in Kolkata has turned around significantly
in the last few years. Its net NPAs were as high as 10 per cent
of its net advances in 2001-02. This figure dropped to 0.84 per
cent last financial year. Cleaning up its balance sheet is only
one of the issues. Performance on growth metrics is extremely
good as far as advances and operating profit are concerned. Even
though deposit growth was a little sluggish in 2005-06, over a
three-year period it is in the top bracket. It slips somewhat
on size parameters, but not too much. Return on assets and return
on capital employed is in the top league.
Finquest Securities' CEO Sejal Doshi finds Allahabad Bank the
top pick in the banking sector given its business volumes and
core operating performance. The bank also has a higher share of
current account deposits and is much better equipped than most
others to handle the cost pressures in the sector. Its massive
reach in the semi-urban areas is an added advantage.
The bank, however, has not been able to leverage its branch
strength most appropriately as can be seen from the operating
profit per branch-one of the lowest in the industry. So no surprise
that the credo has shifted to growth from all branches and not
just some. Add to it the rapid adoption of the core banking platform.
"Although we were a little late in adopting technology, we
are now increasing emphasis on it," says Chairman and Managing
Director, A. C. Mahajan. The bank is currently working on a pilot
project with Tata Consultancy Services.
State Bank of Hyderabad: Quality-Minded
The State Bank of Hyderabad (SBH) has shown all round improvement,
which is reflected in its overall rank jumping from #31 to #7.
Although its size and cost performance is average at best, the
quality of its assets is fairly high. It has done well on growth
parameters such as fee income, and is among the top performers
as far as absolute increase in return on assets is concerned.
Net NPAs as a proportion of net advances are among the best in
its peer group. However, the bank's small capital base (Rs 17.25
crore) gives it an advantage as far as metrics such as return
on capital employed are concerned.
The bank's Managing Director, Amitabha Guha, believes that it
is critical to sustain the growth momentum along with profitability.
And cost is at the top of the agenda since that's an area of weakness
for SBH. However, as Guha points out, the base for 2005-06 was
skewed, since there was a nearly Rs 100-crore one-time settlement
of wage arrears. The absence of that alone should positively impact
costs by 200-300 basis points, he says.
The bank added some 10 lakh new deposit accounts in the current
financial year up to December alone. Guha believes that in the
days to come "deposit pricing will be an important determinant
of the bottom line". As for loans, the bank is focussing
on delivery times, which it has crunched significantly in the
past few years.
Challenges
Cost is going to be a challenge across the banking universe
in the quarters ahead. As an analyst at a foreign brokerage says,
"Banks will more likely surprise on the cost side."
Public sector banks with their wider semi-urban network have a
better ability to tap the current account savings account (casa)
deposits and thereby, keep costs under a tight check. Attracting
and retaining talent is yet another big challenge facing the public
sector banks, as their compensation levels are way below those
of private sector and foreign bank peers.
Corporation Bank is trying to address the issues of lack of
talent by putting its officers through executive education programmes
at institutes such as the Indian Institute of Science and the
Indian Institute of Management Bangalore. Allahabad Bank, on the
other hand, is working on a report by XLRI Jamshedpur to retain
talent. But CorpBank's Sambamurthy feels that it is time to introduce
"better pay for better performers". Indeed, there are
reports that the government may allow PSU banks to offer performance-based
bonuses to its top executives.
The talk of pay-for-performance is a measure of the distance
that public sector banks have travelled over the last decade or
so. Financial disclosures, prudential norms or provisioning have
all become much stronger. As IOB's Narayanasami says, "We
are moving in the right direction." Before long, ambitions
of size and scale should start a clamour for consolidation too.
|
