“We are no more old generation private sector bank,” says K. Venkataraman, Managing Director of Karur Vysya Bank. Indeed, the 97-year-old bank has evolved with time. And, it is keen on maintaining its identity. In this interview with The Hindu, he talks on a range of issues. He wants KVB to be the best bank in the eyes of customers, and not in the eyes of analysts. Excerpts:
In the wake of RBI’s annual policy, what is the challenge for you as a banker?
As far as interest rates are concerned, the margins are a little tight. Deposit rates are slightly higher. Unless they come down, it will be difficult to reduce lending rates. Our bank is looking at ways and means to reduce the cost of funds. The interest rate is only one aspect. There are other areas. The RBI has said it will come out with comprehensive guidelines on restructuring assets. This is one area we are keenly looking into. The draft guidelines can create problems for banks because there are certain existing guidelines. Also, we have non-financial factors for restructuring. These may have to be re-looked by RBI because certain things may not really warrant a 5 per cent provisioning.
How stressed out are you for raising more resources?
We are not stressed out. If we can increase interest rates, we can get any amount of deposits. But that is only moving deposits from other banks. It doesn’t really help.
The capital formation in the system itself has to improve. There are lot of areas where we find government spending has not really gone up. The normal spending during the last quarter has not happened because government was tightening to control the fiscal deficit. For vendors who had supplied to government departments and companies, the cash flows have not improved. Unless this happens, it will be a little difficult. We expect this will start coming. If it comes, the liquidity position may improve, unless government mops it up through increased borrowing.
What do you think of the pressures on the RBI to cut rates?
Interest rates can also come down if the liquidity in the system improves. When money is available, it becomes cheaper. The rates can also drop if government borrowings come down and investment in government securities shifts to other areas. With the government borrowing remaining as it is, it is difficult to see the yield coming down. One area where most of the banks are insisting is a change in the CRR. The RBI has already cut it to four per cent, the minimum is three. The room for further cut is a little less. But RBI can pay interest on CRR.
Are you seeking interest on CRR?
The law does not permit. It can be re-looked since it adds to the cost of funds for banks. The RBI doesn’t want to reduce the cost of funds, because its concern is mainly inflationary trends. The reading of RBI that upside risks of inflation are still there is something which we have to look at. Are they really there? Commodity prices are coming down. In addition, demand is slackening, and growth has come down. The stock market is not very buoyant. In addition, a normal monsoon is predicted. The RBI has got macro economy figures, and it knows better.
Are you then faulting the RBI?
Not faulting, but criticising yes. When RBI says the upside risks are there as far as inflation is concerned we are a little worried. Our inflation is supply side driven. That is what RBI also says. How will you improve the supply side? The RBI can always say that you could have improved infrastructure. We get a letter saying that your export credit is not improving. Tell me which exporter is able to produce with 100 per cent capacity. I am prepared to give them money. Who will give them power? Look at power companies. We have financed them. Where is coal for them to produce? So, there are lot of other issues where the supply side is crimped (not only because of funding). Funding will definitely come if I see the business is thriving. The general environment is such that the business may get into more of a problem.
What are the other issues?
The restructuring norms are very tight… discouraging banks from going for restructuring. I would like to pull the plug rather than going in for restructuring because it is so difficult for me. But we still go for restructuring. I don’t care about provision, though investors and analysts are asking whether it is not postponing NPAs? My stance is completely different. The company is facing a problem. The patient is having a disease. Would you fault me for treating him?
How do you see this fiscal panning out for you?
There may not be any big growth or big change. It may be almost the same as the past couple of years. May be, there could be a slight improvement. If government efforts bear fruit, then probably things will move up at much faster rate. It may not worsen from what it is now. It can only improve. How long will it take? May be from the second-half of the year, it may start moving up.
What is your take on the new banks licence policy?
The policy-makers are in a dilemma. It is not that we don’t want to give licences. How to put it in such a manner that these licences will actually help the economy and the country? What exactly is the problem in the financial system now as seen by the government and also the regulator? Is it about penetration in rural unbanked areas? There are lot of rural areas where the banks are not there. And, banks don’t want to open branches because it is loss making, though there is pressure from RBI. Unlike in the past (the first wave of privatisation), the second wave of privatisation helped the new banks bring in different models, different platforms and high technology investments.
This time, however, there is not much of a differentiation in that area. So, they said we would like to have more penetration — 25 per cent rural and unbanked centres. With that model, it will be very difficult for banks to break even easily. To that extent only, you can open metro branches. Any relaxation given here, however, will give unfair advantage to these banks. Established and running players would argue that they should be allowed to open more metro and urban branches, so that they would make more profit and open more rural branches. The RBI, I don’t think, will be in a position to make any relaxation. If that is not done, the new banks coming with the same set of guidelines may find it difficult. Unless they have a proper, different business model it may be tough for new banks to operate.
The SBI chairman said CRR should be scrapped, what’s your view?
CRR is a completely dead investment for the banks. It adds heavily to the cost of funds for the banks. If you want liquidity, it is an issue. CRR and SLR serve two purposes for the monetary authorities — liquidity and cost of liquidity. If the RBI wants to tighten liquidity, it not only tightens the availability of money, but also makes the money costlier. For these two reasons, the RBI wants a hold on them. The RBI wants to keep interest-free CRR only to see that the cost is always put slightly on the high side. What the SBI chairman is asking simple. You want to have liquidity — 23 per cent SLR and four per cent CRR. You make it 27 per cent. I will put in bonds. I will put it somewhere else. But the point is liquidity is available. Still I am going to realise much less. At least I can pass this to the customer. The RBI is saying you people are operating on very high margins. Reduce the margins. That is a possibility if CRR could be removed and everything is in the form of only SLR; or CRR and SLR in which CRR will pay interest. RBI could say CRR interest is payable provided your margin is between this and that.
As an old generation private sector bank, how insulated are you from threats?
We are no more old generation private sector bank. We are calling ourselves a private sector bank. As far as the threat is concerned, it depends. There may be people who are interested because you have a good network, and good balance. Our portfolio is quite good. Our net NPA is less than 0.5 per cent with a good level of provision coverage and things like that. Naturally, people may be interested because we get very good franchise straightaway. The point is we are not willing for losing our identity. Ninety seven years we have been saving the same identity, and we would like to see 100 years and above and beyond with the same identity.