Mumbai:S. Sridhar, chairman of Central Bank of India, which has turned 100 this year, says the bank is changing for the better. In an interview, Sridhar, who will hang up his boots next week, says the bank has huge legacy issues, but now in certain businesses it is giving other banks a run for their money. Edited excerpts:
You are celebrating your centenary year. In the 1980s and early 1990s, Central Bank of India was the third or fourth largest Indian bank by assets, which has now slipped to 11th. Even Axis Bank Ltd has overtaken you.
There is no correlation between age and ranking. Besides, ranking can be on different parameters and not necessarily on the size of assets. It’s true that Central Bank has fallen from its high stool. It was No. 1 private sector bank at the time of nationalization in 1969. There are many reasons such as proliferation of unions, the inability of the management to be able to craft a strategy that was in line with the changing market conditions. But fact of the matter is that we did not do well. The bank did not change itself to adjust to the post-liberalization economic forces.
In March 2009, when you took over, you had said you would change the bank.
Financially, I think there has been a sea change from when I took over and now. But structurally, it’s an ongoing process. It’s a large bank with 35,000 people and the age profile in every category—from the subordinate staff to the general manager level—is more than 50. There is a legacy issue and we have tried to grapple with that and so had my predecessors.
Improving operations: Sridhar says the growth in Central Bank’s housing loan portfolio has been fairly significant. Ashesh Shah/Mint
We have been able to bring down our cost of funds from about 6.8% in 2009 to 5.71% today. Our net profit in 2010 grew by 85%, the highest in the bank’s history, even though it was not large compared with other banks. Despite providing about Rs.1,100 crore for pension and other liabilities, our net profit in 2011 has gone up 19%. Had there been a more favourable accounting treatment for the retired staff, our net profit year would have grown by about 80%.
Our net interest income for 2010-11 has grown by 109% and the net interest margin, which was below 2% consistently, was 3.47% in the last quarter.
With the cost of money going up, aren’t you concerned about your margins?
We have been trying to pass on the cost (to consumers). Quarter on quarter there has not only been a reduction in cost, but also an increase in yield on advances. Then, there is a shift in the business mix and we have improved our credit-deposit ratio. Our credit-deposit ratio in 2010 was 66%, up from 60%. In 2011, it rose to 72%.
In some of the critical financial parameters such as return on assets, you are almost at the bottom; price-to-book also is very low. You have underperformed both the Sensex and the Bankex.
When I took over, the share price was Rs30. It had risen to Rs240. Many of my shareholders have congratulated me for having helped them recoup the loss they had suffered and that is why we came out with a rights issue in March, where we priced it at Rs103, at a substantial discount to the market price. I wanted to compensate the investors for what they did not get between 2007 and 2009.
In the past six months, the bank has been in the news for all the wrong reasons. You were the official banker of the scam-tainted Commonwealth Games. Your immediate predecessor has been probed for certain alleged irregularities by the central vigilance commissioner. Your independent director was put behind bars for involvement in the bribes-for-loans scandal in October.
The media always wants to listen to negative stories. I don’t know whether you are aware that Central Bank is one of the 18 Indian banks that made it to the list of top 500 banks featured in terms of brand valuation by the UK’s The Banker magazine. The press doesn’t want to pick up this type of news.
Our association with the Commonwealth Games has added value to our brand. In any fair and professional investigation of the Commonwealth Games, nothing would have been found against Central Bank and I am saying this with tremendous confidence.
Let’s get out of sports and talk banking.
We have been able to improve ourselves substantially, but we do have a large employee base and that is why some of the per capita numbers are little lower.
The bank is known for militant trade unionism.
In Central Bank, we have a very strong trade union and also multiple trade unions. But I have received the best cooperation from the trade unions. I made a presentation to the trade unions on my revival strategy and asked them to contribute to it. There has been a genuine partnership. At the ground level, more needs to be done and we will do it. We have been able to create asset verticals and you can check in the market (that) in terms of certain verticals, particularly corporate credit, we are giving other banks a run for their money.
You wanted to focus on retail.
The growth in our housing loan portfolio has been fairly significant. We have been growing in the last two years at an average of about 30% and, more importantly, we have tried to bring together a different model. What other banks do is called the “housing loan factory”. We have centralized all the back-office operations and decentralized loan origination at the branch level. This has improved the delivery time and ensured that frauds do not happen.
We have tied up with a few retail finance companies so that our origination is faster. Our weakness is the age profile of employees and we are not aggressive enough on the field, particularly to match the requirement of young professionals. We have somewhere lost out as we did not understand the banking needs of the upwardly mobile classes post-1991. We could not capture those consumers.
Once upon a time, you were an innovative bank. In 1924, you were the first bank to establish an exclusive ladies department to cater to women customers. In 1926, you were the first bank to introduce traveller’s cheques. But now you say you are not aggressive enough. How do you change this?
It’s our failure that we have not been able to communicate to you some of the innovations that we have done. We are the first bank to have introduced the kisan credit card in a smart card form. The farmer can use it for different kinds of loans and not just the crop loan. He can even buy a car, a tractor, repair his house, etc. There are different sub-limits and everything is captured in a chip. The kisan credit card is no longer a piece of paper—it’s a smart card. You can use that to draw money in any ATM of any bank and remit money to anywhere in India.
Second, we are the first bank to launch an education loan scheme for vocational education. All banks today are financing higher education, but there is a need for vocational education because there is a huge skill gap. We are signing a pact with the National Skill Development Corporation and (will) take this forward.
A year and a half back, we were the first bank to tie up with an insurance company to provide lifetime annuity to senior citizens on retirement.
How has your restructured loan book been doing?
Our restructured loan book is only 4% of the total loan book, one of the lowest in industry, and slippage has been only 8%. We didn’t restructure that many bad assets. Our gross non-performing assets (NPAs) have come down to 1.82% from something like 2.75% two years back and net NPAs have come down to 0.65%.
Will you need to set aside more money in coming quarters to clear the entire pension liability?
We have provided exactly as per Reserve Bank of India (RBI) guidelines. RBI has permitted amortization of the second pension option for serving employees and asked the banks to make full provision for the retired employees.
For retired employees, we have provided for Rs570 crore (for those) who opted for pension as the second option. For serving employees, on amortized basis, we have provided about Rs240 crore this year and this will continue for another four years.
About 17,450 employees have opted for the second pension in addition to the people who had already opted for pension at that time of wage negotiations.
You don’t foresee any impact on your profits in the future.
This is a one-time hit we have taken and I am quite optimistic about 2011-12.
Is financial inclusion a drag on your profit?
Initially, we were doing it through our own branches, but now we do through business correspondents. Central Bank’s DNA is financial inclusion because two-thirds of our branches are in rural and semi-urban areas. Right now, it’s a drag on the profits, but we have gone about it consciously. We will start making money from the third year.
After taking over, you launched a clean-up operation as your NPAs were high. Once you step down, will we see the same process get repeated by the new chairman?
I don’t think that I followed the Aurangzeb syndrome— stab the father, the person in front of you. I have tried to provide aggressively because I did want the NPAs to clear, and this had nothing to do with my predecessor. We have been aggressively providing for NPAs.
You spoke about the Aurangzeb syndrome. The relationship between the chairman and executive directors (EDs) of public sector banks is often uneasy, a “saas-bahu” syndrome.
I have had six EDs during my tenure as chairman. I would think our relations were most cordial and this is because I have tried to involve my EDs in whatever I do. The chairman does not have any say in the selection of EDs, and in any organization, if the subordinate sees that the boss neither has any say in selecting him nor in promoting him—because promotion is done by some other committee—this can happen… This is a systematic flaw. Besides, in most banks, the EDs are not business heads even though they are part of the top management. That is another reason why this happens.
You have a master’s in science degree in physics from the Indian Institute of Technology, Delhi. Why did you become a banker?
It was an accident. I had a love affair with physics in the sense that I liked the subject very much and I did well, but somewhere during my master’s, I lost a little bit of interest and I felt that physics was a tough mistress. I have learnt to love banking.
This is an edited transcript of an interview that was first telecast on Bloomberg UTV on Thursday.