Even as the amalgamation of Industrial Development Bank of India Ltd (IDBI) and United Western Bank Ltd (UWB) gets close to completion, IDBI has chalked out an aggressive retail strategy with its partner.
IDBI took over the weak, old private sector bank, headquartered in western Maharashtra, in October 2006. UWB is the second bank that has been taken over by IDBI, a development financial institution that became a bank by merging with IDBI Bank, its own listed subsidiary.
An IDBI ATM in Mumbai
Now IDBI wants to transform itself from a wholesale bank to a financial intermediary that seeks to service the masses. Currently, corporate loans account for 77% of IDBI’s Rs62,353 crore advance portfolio. IDBI wants to go the whole nine yards in the retail segment over the next three-five years. The lender plans to target small- and medium-sized enterprises (SME) and agricultural businesses.
IDBI also is exploring opportunities to set up an asset management company to enter the mutual fund business and a private equity subsidiary. The lender plans to move the banking regulator in December, seeking its approval for the new ventures. System integration with UWB has been completed and the bank’s branches have moved on to the same technological platform as IDBI, senior officials of the lender said. The process of integrating operations and segregating employees under different business verticals of IDBI is expected to be completed by January 2008.
Despite a slowdown in retail credit growth in the Indian banking industry, IDBI plans to build on its home loan and personal loan portfolio because the bank still has a small base compared with its peers.
Apart from traditional mortgage loans and personal loans, IDBI has launched innovative products, such as loan against travel. A customer can avail of a travel loan, which is cheaper than a personal loan by, at least, 1.5-2%, by producing a ticket to the holiday destination. O.V. Bundellu, deputy managing director of IDBI, said the bank has a three-pronged retail strategy—reduction in the cost of funds through expansion, risk management of portfolio, and growth of retail loans. The topmost priority for the bank is “to replace the high-cost funds with low-cost deposits”, Bundellu said. The lender hopes to achieve this by opening new branches. Through an expanded branch network, IDBI is in the process of acquiring more low-cost current and savings bank accounts (Casa).
The bank’s current Casa level stands at 25%. IDBI seeks to bring up its Casa level to 32%, over the course of 2008-2009.
“To increase Casa, we require more branches,” said Bundellu. So, as a part of its retail expansion strategy, IDBI plans to open 45 new branches in the next month.
The bank will have close to 500 branches across India by year-end. It plans to seek the approval of the Reserve Bank of India for 200 branches and 300 automated teller machines next year.
In addition, the merger has given IDBI a 229-strong branch network and expanded its portfolio share in SME, which stands at Rs2,330 crore.
IDBI is not only looking at providing loans to small traders but also is hoping to keep their money as bank deposits.
The lender has tied up with sugar mills, such as Bajaj Hindusthan Ltd which is headquartered in Mumbai and has nine firms in Uttar Pradesh.
IDBI is looking to make loans available to the sugar farmers.