One remark can sometimes make the difference. Barely two weeks into his first job as banker, the training co-ordinator at the Oriental Bank of Commerce told T. M. Bhasin that he would be a miserable failure as a banker and advised him to pursue a doctorate instead. That made him determined. A focussed approach helped Mr Bhasin scale new highs in the banking space leading up to his present assignment as Chairman and Managing Director of Indian Bank. He spoke to The Hindu recently on various issues in the banking sector. Excerpts:

What are the challenges facing the banking system ?

One of the major challenges is HR . Lot of retirements are going to be there in the next few years. Most of the present employees joined in the 1972-75 period, and many of them will be superannuating in three years. Over the past few years, we have been trying to recruit people, groom and make them ready for future challenges. Risk management, asset quality maintenance and opening of more branches in unbanked areas are some of the other challenges facing us today.

Is the cost per employee a cause of concern to public sector banks?

When I joined this bank in on April 1, 2010, there were 19,200 employees. Today, the strength is around 18,800. Even after recruiting 2,000 people, the number has come down by about 400. We are not increasing the number, we are just replenishing it.

When we talk of new people, their cost will be something like one-third or one-fourth of an [existing] employee. The cost-to-income ratio, at 38 per cent for Indian Bank is the least in the industry. We are very comfortable at this level.

What measures are you taking to improve the asset quality?

The gross NPA of Indian Bank as on June 30, 2012, is 1.66 per cent, which is the lowest level in the entire public sector banking industry. Our NPA came down by about 40 basis points in the first quarter of current fiscal due to robust recoveries. We made about Rs.152 crore cash recoveries. As a result, accounts amounting to about Rs.256 crore have been upgraded. The database is available in the system, and, on a daily basis, a GM-led department is taking care of the asset quality.

How much did the loan restructuring help?

Indian Bank’s restructured portfolio is very healthy. Our total restructured portfolio as on date is Rs.9,918 crore. Out of which, about Rs.360 crore is only NPA. About 3.6 per cent was the slippage.

We are classifying even the non-restructured amount of the borrower. If someone has taken three types of loans and one loan has been restructured, we classify the group or the borrower as a whole as restructured. There has been an increase in the restructured book due to this. But after getting the account restructured if we are able to rehabilitate it to the standard category.

Our restructured book will come down to about four per cent of the total loan books when we implement Mahapatra Committee recommendations. We analysed and found that about Rs.5,500 crore will be out from the restructured asset portfolio then because they have already run their life. Significant recoveries have been made over a period of time in those accounts, and they are running standard.

One of the Deputy Governors of RBI pointed out that why should banks restructure only corporate loans and why not other loans?

We are doing it. In March this year, we found there were lot of NPAs in education loans. So a policy was formulated and strategy evolved under which we got in touch with the parents. We contacted the students. Wherever we found they are not getting jobs, we restructured the loan. Similarly for agriculture, if there is some drought, flood or crop failure, there is a provision in the RBI policy and we are making full use of that and doing restructuring. Wherever restructuring is required for MSME and SME, we are doing. In the first quarter, 22 per cent of the restructuring was for the agriculture sector, and about 8 per cent for education loan sector.

Do you agree that banking per se has become so impersonal post the 1990s?

At Indian Bank, we are particular that it should not become totally machine centric or IVRS-centric.

Our effort is to ensure that we get connected with the customers, and it is not that machines should answer their queries. The emphasis is to be close to the public.

At the same time, machines are playing an important role because there is another set of people who want to do 24-hour banking. For them, we are setting up e-lounges.

How much has the high interest regime affected the industry and the bank?

In the current year, there has been some decline in the number of new proposals that we are receiving for fresh projects. At the same time, we are getting good opportunity from agriculture, SME, housing, education and other retail sector. Of course, high interest cost is an area of concern for a borrower.

Is there a possibility of deposit rates coming down?

If you see the statements of RBI in the recent past, they say the gap between high cost deposit and normal deposit should be reduced.

Indian Bank has been able to maintain its profitability only because we have not gone aggressively for high-cost deposit and low-yielding advances. Our return on assets is at 1.31 per cent. Our operating profit-to-total business ratio is at 1.64 per cent.

Our net profit-to-total business ratio is at 0.83 per cent — these are the highest in the entire public sector banking industry. We have been able to maintain our NIM at about 3.3 to 3.4 per cent, which is quite reasonable. There has been some decline in our NIM. It used to be about 3.50. We have been able to manage it by augmenting other sources — income from LC, BG guarantee, sale of mutual fund and insurance products.

With Basel-III coming, what is your headroom?

The capital adequacy ratio of the bank today is 13.50 per cent out of which Tier-I capital alone is 11.13 per cent. We can raise Tier-II bonds to the tune of Rs.7,600 crore. So, there is a lot of headroom available. We have been ploughing back net profit - Rs.1,250 crore in 2009, Rs.1,500 crore in 2010 and Rs.1,700 crore in 2011. When we plough that back into the system, it is free reserve. I am not incurring any cost. In the last two-and-a-half years, our profit plough back has taken care of around 20 per cent growth of the loan book. We have also taken the Government of India permission for 10 per cent equity dilution.

Do you subscribe to the view that the country is moving from a savings-led economy to a consumption-led one?

It is more because of inflation. The moment you control inflation, the saving rate will go up. Today, a part of saving is being used for consumption. There are also supply side constraints. So the moment we open the economy… if controlled or regulated FDI is permitted in retail, then things will start improving slowly.

At the same time, it should not hamper or affect local industry or kirana shop-keepers. It has to be a very balanced and delicate approach so that we can reduce the supply side constraint and increase production. The money flow should be in such a manner that the cost of providing the credit is taken care of. Europe is undergoing turmoil. The U.S. economy has started settling down. All these things are called referred effect. When one part of the body is aching, the other also starts feeling the pain. The global economy is suffering, and the Indian economy is having a referred effect.