South Indian Bank is optimistic of maintaining healthy growth going forward

An affable banker who speaks the language of the ordinary man, V. A. Joseph has been heading South Indian Bank (SIB) for a decade now. One of the fast growing private scheduled banks in the country, SIB has gained consistent strength even in times of economic downturn. In an interview to The Hindu, Mr. Joseph, Managing Director and CEO, speaks about the banking industry, in general, and SIB, in particular.


With Internet banking catching up, and new opportunities in mobile banking being unveiled, what will be the future of banking?

It takes time to change habits. A lot of apprehensions remain among people on Internet banking. Banking habits have been acquired over a period; it is difficult to change it overnight. Even after about a decade of introduction of ATMs, there are people who hesitate to use them.

During the initial days, there were customers who wondered as to whether the ATMs were magic machines where individuals physically operated behind the machines. People used to get upset over minor hitches in operation.

It has become a habit for a number of customers to make use of the requisition slip or cheque for money withdrawal. Under the prevailing scenario, it will take time for Internet banking to become popular.

The day will come when transactions can be performed with the help of a card, a mobile and a computer. An image of a cheque sent on mobile will be enough to execute a money transfer in future.

How about branch expansion and business growth?

We have set a target of opening 50 branches every year. The present strength of 750 will go up to 800 during the current financial year. We have a pan-India presence, with branches in all States except two. We are doing good business in several States. In Delhi, our business is worth Rs.7,000 crore.

What kind of a threat will new banks, proposed to be licensed by the RBI this year, pose to the business of smaller banks such as SIB?

SIB is a medium-sized bank with an aggregate business of over Rs.76,000 crore as on March 31, 2013. With a consistent growth of around 25 per cent for the last few years, we are aiming at an aggregate business of Rs.1 lakh crore by next year.

Along with growth, we are able to keep asset quality and profitability intact over the years. Thus, we have a niche area of operations, where we do not feel any great threat.

Several banks such as Bank of Punjab, Centurion Bank and Global Trust Bank, which started operations a few years ago, are not there now. People look at the management. Credibility is a key issue in banking.

How is business in the rural segment?

We don’t need RBI sanction for opening rural branches now. An RBI licence is required for opening metro branches only; there is no restriction on the number of rural branches that can be opened.

The RBI stipulation is on the proportion of metro-rural branches. (Banks have been advised by RBI that while preparing their annual branch expansion plan (ABEP), they should allocate at least 25 per cent of the total number of branches proposed to be opened during a year in un-banked rural centres.)

There is good opportunity for banking in rural areas akin to that of metros.

There are several advantages in respect of rural branches. We incur less on infrastructure, and operational expenditure. Rural savings have gone up; it is wrong to believe that rural people have no money. But one problem that crops up is the stunted growth after a certain period because of the limited rural resources compared to metros.

How is the business from NRI segment? Have the recent visa restrictions imposed on expatriates in the Kingdom of Saudi Arabia (KSA) affected the prospects of NRI banking?

Roughly about 20 per cent of our business comes from NRIs. The current restrictions in KSA are not expected to affect the foreign exchange inflows. The unskilled workers are facing a crisis. The problem will arise if all the skilled as well as the unskilled workers are asked to leave the kingdom. Such a scenario is not visualised now.

What is the net NPA position of SIB? Where do you project it for 2012-14? What is your bank’s exposure to the troubled sectors of power, telecom and airlines?

As on December 31, 2012, we had a net non-performing asset (NPA) at 0.68 per cent. We hope to marginally improve it in 2013-14. Our total exposure to the power sector is 8.53 per cent, and telecom 0.64 per cent. Our exposure to airlines is nil.

What is the position on the Rs.150-crore NPA due to the loan to NAFED, which went bad last fiscal? Have you provided for it completely?

As of March 31, 2013, we have already provided Rs.90 crore, and will be providing the balance Rs.60 crore in 2013-14.

Are you seeing pressure on net interest margins (NIM)? What is the NIM likely to be for the coming fiscal?

With liquidity in the system still not very comfortable, bringing pressure on cost of deposit, the NIM can be under pressure. With a judicious mix of loan products and pricing, we are able to keep NIM over 3 per cent. We hope to keep it at around 3 per cent going forward also.

What is the size of your gold loans portfolio relative to your total loans?

Our gold loan portfolio is 21.76 per cent of our total advances as on March 31, 2013.

Why are banks, in general, not able to perform better than NBFCs engaged in gold loans?

Gold loan is only one of the products of banks, whereas it is the prime business portfolio for gold loan companies. Many people approach non-banking finance companies (NBFCs) in an emergency beyond banking hours. There is lack of awareness among the public about the quality of bank’s service, even in terms of interest rates offered. Banks provide all sorts of service. We are functioning under RBI framework; we can’t lend as we like.

Banks are said to be hesitant to provide loans to entrepreneurs while the government is keen on giving thrust to entrepreneurship. How do you view the situation?

Several people come with readymade project reports. They have no practical knowledge. They need to have a clear-cut idea about the project, and, preferably, some experience.

There are certain areas where an entrepreneur can excel. Providing loan for any venture without looking into the pros and cons will not be advisable. Beyond banking, the banker has to be compassionate and considerate. In fact, it is the banker who prays for the well-being of the customer because the bank’s prosperity depends on the gains of the customer.

How about your bank’s presence abroad?

We have a tie-up with Hadi Express Exchange, based in the United Arab Emirates. At present, there are seven branches, and more are being planned. South Indian Bank has been providing managerial service to Hadi Express Exchange since 2006. Instant credit to your SIB account from the UAE is facilitated by the exchange.

Officers deputed from South Indian Bank are available at each branch of the exchange for banking assistance such as instant money transfer, and opening of NRE accounts and deposit accounts at any branch of SIB.

It is to be noted that permission for opening new branches abroad in various countries is faced with a counter demand from those countries to open branches in India. The latter is a profitable venture for the foreign banks, which means losing some home ground for the Indian banker.

India, with its diversity, offers tremendous scope for banks to prosper. I have often wondered as to why there can’t be an initiative to irrigate hundreds of acres of non-irrigated land in States such as Andhra Pradesh. It can alter the agricultural scenario, and impact the economy as a whole.

Analysts say that your bank is a prime takeover candidate given its balance-sheet strength,and low valuations. What is your comment?

We are in existence for 84 years now, with consistent growth in business and profitability for the past few years with handsome rewards to our shareholders. In 2005-06, the net profit was Rs.50.90 crore, and 18 per cent dividend was given. In 2011-12, the profit was Rs.401.65 crore while the dividend pay-out was 60 per cent.

We are optimistic of maintaining our healthy growth going forward. In the past, only weak banks have been allowed to be taken over by other banks. So, we are confident of keeping our identity in the coming years also.


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