He has a deceptive frame. When he opens up, however, thoughts flow ever so freely. As a banker, he is willing to stick his neck out to take a few risks. In this hour-long interaction with The Hindu , M. Narendra , Chairman and Managing Director, Indian Overseas Bank, puts enormous faith in the Indian banking system. Excerpts:
What is the banking scene like at the moment?
It is reasonably challenging, and offers several growth opportunities. Retail credit is one area where every bank is taking more diversified risks. In our case, we are looking at increasing our penetration in semi-urban and rural centres.
Agricultural credit is another portfolio which has assumed more significance from the perspective of helping farmers, who are staring at the failure of monsoon. While Tamil Nadu and Andhra Pradesh have not been affected, States such as Maharashtra, Karnataka and Gujarat have been affected by drought. One component of the plan is to supplement the income of such farmers… you need to give help to pursue other activities such as poultry, fishery, dairy farming and sheep-rearing.
Another focus area is the service sector professionals. We are looking at the salaried segment, middle-income group and even individuals with high net worth. They don’t face difficulty in servicing loans though their savings are limited.
What are the challenges facing the banking industry at the moment?
They are in the form of sectoral difficulties. These, in turn, are either due to global or domestic factors, inflation-related or because insufficient liquidity. Non-availability of natural resources such as coal, limitations of the government to provide fiscal sops, increase spending in view of concerns related to fiscal deficit, restrictions in terms opening up of some sectors — various factors can affect the financial sector.
Infrastructure projects can do a lot of good, and need to be pushed. It will lead to core sector growth… be it steel or cement. Real estate sector also needs to be a little buoyant. If there are people who do not want to bring down the price, demand may be less! Globally, investors are for more reforms, especially in insurance, retail and aviation sectors.
In the financial sector, there is a variation between the credit growth and resource growth. Since inflation is high now, a lot of money is being put in physical assets such as gold and real estate as a hedge. Physical assets have to be converted into financial assets. A key challenge for us is to reach out to pockets where there is surplus money through the current banking channel. There is need to improve last mile reach.
Where does interest rate figure in such a scenario?
If new capital expenditure is not coming, it is not merely related to interest rates. If your operating income is less, then you will look at interest to see if it is high. But if the operating income is higher, then interest cost is affordable. It is not interest alone. Fair levels of cash accruals are needed. We do have many corporate entities with good cash reserves, and looking for good acquisition, both within the country and abroad. They are waiting for the right time and valuation. While doing so, proper planning is the key. For, there are also those who have gone for all types of expansion, some core activity and some non-core activity. A jerk in the business cycle gets them affected.
What will be the impact of the cut in SLR (statutory liquidity rate) by the Reserve Bank?
To that extent, your ability to borrow money from the RBI to fund your productive sector is increased. In view of the proactive steps taken by RBI, it is necessary that we also should give benefits to some of the productive sectors. It will help the banks reduce the cost of funds. If your lending growth rate is 17 per cent, then your deposit growth rate need not be 25 per cent. Why should you unnecessarily add to your costs? When money is coming into the system, I can supplement it from RBI. Why not reduce the deposit rate? There will be an opportunity to reduce the rate of interest on housing, vehicle, personal segment and trade loans.
Do you have any special schemes for farmers?
We [all the public sector banks], based on a government guideline, are in the process of introducing a comprehensive smart card that will make the process of accessing agricultural credit hassle-free for farmers. IOB also recently undertook a campaign for investment credit. This would enable farmers to improve productivity and efficiency of operation. It will also bring more agriculture land into farming. This month and in September, we are likely to do Rs.1,000 crore to Rs.1,500 crore fresh disbursements of crop loan.
What is being done in terms of financial inclusion?
Every village covered under financial inclusion has now to be covered under investment credit. This is a part of the capacity-building measure. In addition, all these people have to be given five products, now the focus is on that. Following the appeal of Chief Minister [Jayalalithaa] to make Tamil Nadu a model state in terms of financial inclusion, a meeting of bankers was held, and it was decided to start the work to cover around 6,000 villages. We also see a major role for us in the decision to introduce electronic payment, using Aadhar cards, of the benefits under both the Central and State level welfare schemes. The challenges would be in ensuring that our Business Correspondents are capable of implementing the project, the rush does not come to our branch in such a way that our normal business gets affected.
Will banks increasingly play the role of a facilitator too?
There is lot of opportunity in capturing the money when it has to be passed on to the beneficiary electronically. It gives you a lot of access to government float funds. A transaction fee may also come, and you are getting a good customer.
Do you see this as a new segment?
Six lakh villages are a large number, and we have covered 73,000. When seen against the population of the country, all the accounts of the banking industry is very limited. Even in urban area, there are so many people who do not have bank account. They earn, but the cash never gets into the banking system. It has to be done.
Which are the sectors that show more promise in terms of credit offtake?
Road projects, particularly where the toll collection will be fairly good, and the service sectors such as hospitality, hospital, educational institutions – they will all be in the list.
Is the Indian banking system efficient, better?
We are much better thanks to the initiatives taken by the government and RBI. During the boom period, we were not so luxurious to shell out everything, there is enough counter-cyclical buffer. RBI is again thinking of dynamic provisioning, and in terms of capital adequacy, we are moving from Basel II to Basel III. In all these areas, the supervision, control, plus the self-made regulation, and the financial discipline are all much better. Indian banking sector is much capable of withstanding the difficulties. And, the Indian people are also capable of paying.
As a banker, what would be your advice to yourself?
We need to be really in communication with the customers. We must be able to know them well, provide them solutions, and, at the same time, not pressed in terms of NPA. The need is for a balanced approach, keeping in mind financial strength of the bank and contribution to the economic growth. As a banker, my advice to myself is be alert, active, and be positive. Being positive is very important. Too much risk aversion is also not good.
