Expect IDBI Bank to earn profit from Q3 or at most Q4: Rakesh Sharma
It is better to have fewer number of banks. Personally I support that idea, says Sharma
What is the inside story of bankers meeting the finance minister?
Basically it is customary and finance ministers call for recommendations before budget. It is part of the process. Accordingly, they had called the bankers also. Naturally, the government is interested in reforms and they are looking forward to deepening the corporate bond market and increasing the scope of alternate financial institutions like AFI and further various current issues like NBFCs. Further details I may not be able to give you because certain suggestions were given by the participants on how to further improve the economy and bring more reforms. So, certain suggestions were made for deepening the corporate bond market and enhancing the scope for retail investors. Certain tax exemptions were asked. Whichever suggestion was accepted, would be presented in the budget.
How should we look at the recapitalisation money which PSU banks have got and which has really gone down in a not very productive way for the banking system?
I will slightly differ with you. The banks were capitalised and it was required also. During the last two-three years, the asset quality review was taken. Earlier, the bankers were a little shy about declaring NPAs. After asset quality review, all the banks have cleaned their balance sheet. NPAs were declared and provisions made.
Strength wise, most of the banks have been able to improve their provision coverage ratio, including our bank. The provision coverage ratio as on 31st March was 83% for most of the banks. Now it is 70%. Earlier, it used to be in the range of 45-50%. The NPAs were recognised, provisions made and now the resolutions plans are being worked out. The banks were capitalised. Because of the higher provisioning and all these things. the losses will increase. Basically, the capital has supported them.
If this capital was not there, then just imagine what would have been the position. That way, the capitalisation has certainly helped the banks and going ahead, the position of the banks will certainly improve.
Are you getting a sense at all that perhaps the finance ministry does want banks to start lending given that we have seen somewhat of a freeze mode on that front? Are you getting any feelers from the finance ministry that they are urging banks to start changing that?
No feelers. What I understand from your question is you want to know if the banks will start lending again. I think the banks are already lending and we are under PCA. So, certain restrictions are there. We cannot go for more large corporate and there was a reason behind that.
For IDBI Bank and other banks which have been put under PCA, the problems have mainly occurred in corporate financing and there are various reasons for that. I need not go into the reasons again. You know the international structure, the global affect and China’s steel imports and the coal licence issue for their power structure etc. Banks which were more in corporate financing and infrastructure finances, have faced more problems. Because of that, certain banks were under PCA including our bank. Since there was a deficiency of capital earlier, the capital has been given. The bank’s position has improved, fundamentals have improved but if those PCA banks also start doing further financing and do not reform themselves, then again this capital will be a problem.
We are trying to consolidate our position. In our bank also, last year we identified all the NPAs recognised the problems. We recognise the treasury issues and all these things we have corrected now. This year, we will be doing consolidation and once we are out of the NPA issues and recoveries are done, the banks are there to raise deposits and lend money. If you do not do business, how will we survive? Like in our bank and other PCA banks also they are doing retail advances. Strictly under SRA (structural retail asset), it was almost 18% which is good growth.
The buzz around consolidation is stronger. SBI has consolidated its subsidiaries. There is a big consolidation happening in BOB along with two more banks. Do you think in the next five years there is a possibility that about 2 dozen PSU banks may be reduced to 8 or 10?
These issues are also being discussed of course and you have seen of course, SBI has consolidated, BOB has done it. As of now. the Bank of Baroda experiment has been reasonably successful. I personally like these bigger banks. They have done consolidation, they have recognised the problems, their position is getting better, fundamentally they are getting stronger. But in another six months to one year, it will be better for consolidation because there is no point in merging some weak banks and making more problems for the bank.
So another six months to one year down the line, once the big banks become more comfortable, it will be proper to have some 5-7 big banks. That helps our international banking also as that increases our bargaining power, removes inter competition because all the public sector banks are owned by the Government of India. When all the banks compete with each other, it is better to have fewer number of banks. Personally I support that idea.
So if a proposal to merge IDBI Bank comes through with other strong bank, would your unions be okay to it?
As far as IDBI Bank is concerned, it is a different position. Recently, in IDBI Bank also, the government has initiated some reform measures. This was LIC taking up 51% share in IDBI Bank. This was one of very good step and win-win situation for both LIC and IDBI. On our own, we will be able to turn around the bank by Q3. My plan is that by the end of this financial year, we should be out of PCA and from Q3 or latest by Q4, we should start earning profits.
The net NPA will be much below 6%. I think we will be able to survive on our own. For IDBI Bank, I do not think further experimentation or measures will be required. With LIC and IDBI being together two good brands and lot of synergies are being worked out. Already. this experiment and good step has been taken. We will like to survive on our own and we will like to turn around the bank.
You have decided to come back after retiring at the top from Canara Bank to fix the problem at IDBI Bank. What prompted you to take this decision?
I will be very candid with you. The issue is that 60 is not the age for retirement. I have enough energy and enthusiasm in me and drive to work in a good position. So, when this position was offered to me, I thought it will be a very good experiment for me and a good step for me. If I am able to turn around this bank personally, I will be very happy and it will be really challenging.
But the position is not so difficult and already we have identified the problems. Some of the problems have already been fixed up. As you see, the 31st March position, the improvements have taken place. We are improving HR. We are doing improvement in risk management. Various policies are being reworked. We are in the process of appointing some consultants for further transformation and government has also helped us in giving capital.
LIC has given us capital. So one more tranche of capital we are thinking of raising around Rs 10,000 crore capital. We will be in a position soon to go to the market and raise capital also. It will be the most satisfying experience for me if I am able to turn around the bank. I am gut sure about it. Accepting this offer was a pleasure and honour for me.