IDBI Bank is in the midst of a process that will see it shed some of its more “legacy characteristics”, focus on priority sector lending and fast-track its retail branch expansion, according to Chairman and Managing Director M.S. Raghavan.
The bank’s transformation from that of a development financial institution has left it lacking an expansive retail branch system, which, in turn, has not allowed it to achieve the required 40 per cent priority sector lending.
“We moved over from DFI (development financial institution) into the commercial banking segment and with it came some characteristics such as nearly 70 per cent of our loan book being oriented towards corporate,” Mr. Raghavan, who assumed his current role less than two months ago, said, in an interaction with The Hindu on Friday.
A consequence of this, he continued, was IDBI not being able to service the priority sector as well as it could be doing— a problem that comes with several negative penalties.
One of the bank’s top priorities is to now quicken the pace of retail branch expansion.
“This absence of a huge branch franchise also hurts me because I am not getting the CASA I want. In addition to this, I have to deposit the penalty or difference, for not achieving 40 per cent priority sector lending, in RIDF (rural infrastructure development fund) which gives me lesser interest,” Mr. Raghavan said.
“We have a little over 1,000 branches. But for a bank of our size… other nationalised banks have nearly 2, 5000 branches. We did not concentrate on branch expansion to the extent we should have,” he added.
On the non-performing asset (NPA) quality front, Mr. Raghavan pointed out those concerns would remain for at least another six months.
Dramatic improvement in the near-term, he said, “is not expected”.
Nevertheless, the IDBI Bank chief is optimistic.
He expected the stress in the banking system to ease considerably by the end of this year.
Mismatch of cash flow
“The stress level, mainly caused by a mismatch of cash flows, will remain as it is for the next three months. After that, we see it turning around. We see stalled projects getting reactivated, dialogue starting to take place, and the economy turning better,” Mr. Raghavan said.
“The Finance Ministry is working very consistently on getting activity moving again,” he added.