Banks can never be free of NPAs; it is a part of the business: Padmaja Chunduru, Indian Bank

"Indian Bank's corporate lending has grown by 12% and we expect that it will improve in the fourth quarter", says Padmaja Chunduru, Managing Director and CEO, Indian Bank. During a candid chat with Zee Business's Swati Khandelwal, Chunduru said," Indian Bank-Allahabad Bank amalgamation process will be completed by April 1, 2019". Edited Excerpts:

Has good days of banks have started and the worst is behind you?
The bad days of the banks have passed especially in the context of NPAs that was felt in the banks' balance sheet. Banks, government, the Reserve Bank of India have taken various steps and with those, the banks' balance sheet has become resilient enough to handle the stress even in future as banks' can never be free from any NPA as this is a part of the business. But, to handle any stress that comes, I think the banks and the balance sheet, the management, the governance and everything has been now strengthened enough so that there will not be much stress or volatility in the days to come. The balance sheet is definitely stronger today with the provisions that have been built up and the capital that has been infused by the government.

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Corporate and MSMEs say lending hasn't been eased as the banks are reluctant while lending despite RBI has said that enough liquidity is available in the system. How far the liquidity concerns have been addressed and are your bank ready to lend to corporate and SMEs?
I don't think there are any constraints especially when it comes to Indian Bank. Either in the form of liquidity or capital, the bank is well-positioned to lend. We are lending to corporate, MSMEs and retail sectors to all the borrowers across the spectrum. Besides, we are reaching out to the MSME sector through the outreach programmes also that to not only to our customers but also to potential customers, as well. As far as MSME and retail are concerned, there is a definite uptick from the public sector banks, however, the NBFCs have slowed down on their lending and it must be one of the reasons for the feeling that the lending has slowed down. But the banks have stepped in through the outreach programmes and other initiatives taken by the government, the RBI and the bank itself and things have improved.

When it comes to corporate' then things depend on the demand from them that whether they are investing in fresh projects or something else. From corporate', we are seeing demand only from one of two segments may be the infrastructure, the roadways and a few other segments. But in general, the private investment by the corporate has been muted a bit and we expect that it will start by the next quarter. So, we expect that corporate lending will be better. In the case of Indian Bank, we have seen a 12% growth in corporate lending and I am sure that it will continue and even improve in the next quarter.

Can you tell us the amount that is available at Indian Bank which can be used for lending purposes?
I can just say welcome to all the corporate and projects to the Indian Bank. As far as lending is concerned then there is no cap on it except the single borrower exposure that is a guideline provided by the Reserve Bank of India. Otherwise, there is no constraint on capital and liquidity as far as Indian bank is concerned. Our doors are open to all the corporate.

Update us on the announced amalgamation of the Indian Bank and Allahabad Bank and will you meet the timeline of April 1, 2020?
April 1, 2020, is the target date and the process of amalgamation was started immediately just after the announcement was made by the honourable Finance Minister. Meetings have been held with the Allahabad Bank and me, myself, has visited Allahabad Bank twice and met with the customers, the staffs, the management and the board to just understand the situation and take the process forward. Committees with representations from both the banks have been set-up to steer the process along. Several steps are taken in this process and there is a need to integrate different verticals. Apart from the IT and the HR, there are also other segments that have to come together and for the purpose, GM Committees from both the banks has been formed with representation from both the banks. Also, a steering committee with the EDs of both the banks. Besides, I am chairing a high-level apex committee. So, these committees will help in getting every approval that is required for this amalgamation of the two banks. There is also a process where we get consultants on board to handle the tax, the legal, financial due diligence, valuations and run the process of integration itself. The Request for Proposal (RFP) process for the same has been completed and we have consultants on board, who are coming with their strength. We are confident that we will have a smooth and seamless integration from April 1, 2020.

Do you think that Indian Bank can give a better proposition after the merger? 
First of all, I would like to say that the Indian Bank was always the most valued public sector banks in the country. Indian Bank's share prices have grown significantly in the last 3-4 years. I think, in the last few months, there was certain apprehension/uncertainty about the merger because Indian Bank was doing good and the investors had an uncertainty about the future of the bank, i.e. whether it will be amalgamated into another bank or it will take over another bank and now, a full stop has been put on it. We know that this is going to be the anchor bank and will be taking over the Allahabad Bank. The amalgamation will give birth to a pan-India bank with 6000+ branches across the country with a stable deposit base including a good CASA that comes from the Allahabad Bank. And, the good provision coverage ratio of Allahabad Bank will give s strength to the amalgamated entity. Indian Bank's asset quality is good and Allahabad Bank is also trying to clean up its balance sheet before the amalgamation process completes. So, with all the right intentions people are working on both the sides and the amalgamated entity that will be created will be much stronger and stable and will have a scale to reach a higher level of clientele to lend at a higher level to the corporate. To reach out to the areas where we didn't have our branches so far, as Indian Bank was mostly in the South and West while the Allahabad Bank is more in the North and the East. Thus, the biggest plus point of this amalgamation is a few overlapping of the branches. 

In the case of other business metrics, the amalgamation should prove to be a very strong one. Although, the process of amalgamation is going at a good speed and seamlessly. And, IT is on the same platform with TCS being in the core business provider, we have been working with them very closely. I am confident that this amalgamated entity will be one of the strongest banks in India and with the kind of geographic reach, deposits and liquidity that will be at the disposal, we will be able to scale up on the asset front also with a very strong balance sheet and capital position.

The investors have kept their faith in Indian Bank and its strength. In fact, I have always been interacting with investors and analysts and find that there is very strong confidence in the bank. And, I am sure that we will be able to live up to the expectations and also exceed that with all the work and strategic planning that is going into this amalgamation.

This means anyone can make long term investments in Indian Bank to get better returns?
Yes. Even we all have invested a lot in the employee stock purchase scheme and we all are stakeholders and have the skin in the game. It is in the interest of all the staff members as well as the investors who are in it for a long-run.

It is a time when several strong banks will come into existence and the competition will be a tuff one. So, what will be your strategy to keep beating the competition?
Even today there is competition as there are bigger banks then Indian Bank like SBI, Bank of Baroda and PNB. All these are much bigger when compared to the Indian Bank balance sheet size. But if you have a look at the financial performance metrics then Indian Bank is very much at the first or second position in respect to all the parameters. So, the size and scale are important and also the efficiency and profitability are very important. So, going forward, there will be bigger banks and competition but Indian Bank will definitely do well and will be able to face this competition. The pie is bigger for everyone. India is still an underpenetrated market as far as asset build up in the bank is concerned. I think there is enough space for everyone and let the most efficient bank win.

Indian Bank's net NPA levels were relatively in good shape at 3.75%. What is your expectations for NPA and Credit Growth before and after the merger?
Indian Bank on a standalone basis have been giving out our estimates and what we expect and are sticking to those parameters. I am sure that the net NPA level will be much lower by March 2020 then what it is today. When it comes to the combined entity, I think the due diligence is on and we have seen the recent results of Allahabad Bank and there are two more quarters where the results will be out. The figures will be much clearer once we have financial due diligence and the valuation figures in place. So, I would definitely strive to have a stronger asset quality but it may take one-two quarters for us to fully get the synergies in order so that we can show a better figure on the amalgamated entity.

What is the quantum of recoveries that is expected by the end of this financial year and name the accounts where you have an exposure?
Essar Steel was one account where a lot of the banks have got a good recovery but Indian Bank had no exposure in that. However, there are other accounts in NCLT, like Bhushan Power and Steel, in which we are hoping that the recovery could come this quarter or early next quarter, as we are expected recovery of Rs2,000 crore from it. Apart from that, there are many accounts where efforts are on for recovery whether through the legal process or the OTS. The recovery as you suggested it is picking up, so by March we are expecting a good recovery even in the smaller accounts through the OTS scheme that the Indian Bank has launched and through the medium and bigger accounts through the NCLT route or hard recovery measures. So, I expect the recovery portion will improve but NCLT will play a big role in this recovery. The total figure of recovery will stand around Rs3,000 crore by the year-end.

What is the update on the non-core assets from which you wish to exit and clean your books? What amount are you can raise from them?
Indian Bank doesn't have any such issue because there was never any capital infusion except the recent capital infusion that happened after the amalgamation announcement was made. The bank was quite okay on capital and the financial matrix was good. We don't own too many non-core assets but have a subsidiary which is into the housing finance and a merchant banking subsidiary. And, there has not been any mandate to exit these subsidiaries or to get the sale of non-core assets. But as a strategic move, we have been looking at getting a strategic partner into the Indian Bank Housing subsidiary with an aim to activate it and get it into lending for the affordable housing space. So, that effort is on and maybe in the next two quarters that will see a good momentum.

Are you open to having private players as a partner into it and how many stakes you own in this entity?
The details will be provided once after we work on it but yes we are inviting the private player for a small stake in it. The details will be provided separately.

There are asset quality concerns in power and housing sectors. What are the issues and what is your long-term view on housing finance? What impact the slowdown in the auto sector had on your bank? 
As far as real estate is concerned then the government has taken steps for it and in recent past has announced an alternative investment fund of Rs25,000 crore as last-mile funding for the struck projects. I think that is a very good move and Indian Bank has also committed to investing in that fund so that we get a chance for the upside on those stuck real estate projects, whether it is with our bank or some other bank. Indian Bank's exposure to the real estate projects has been limited wherever we have those in the mid-size projects and these projects are more or less coming on the screen. So, our NPA position in the real estate sector is under control. When it comes to housing then housing loan is one of the mainstays of the growth in the real estate sector and our loans are well controlled on that side as well. However, nowadays, the stress is growing and we are working on it and are looking at various problems of the customers.

The pick-up in auto loans has been little slow in the last two quarters but now we are seeing some pick-up happening in the auto loan front too. We are entering into tie-ups with the auto manufacturers and dealers also to make sure that we get into the hand-to-hand financing. We are trying our best to start lending to auto as well as the housing finance. With the agriculture season picking up with good rainfall, we expect demand to pick-up in these fronts. The pickup has been a good one in the retail and auto segments during Dussehra and Diwali.  

We want to have your reaction on RBI's decision to keep the policy rate cut unchanged and its comments on the transmission of the previous cuts? How much rate cut has been transmitted from your end?
RBI has kept the status quo and I think it was kept with an eye on the inflation pressures that they, probably, are seeing building up. When it comes to transmission of rates then it is important that the deposits are also rationalised, so that the lending rates fall in line with the reduced RBI rate and it is happening. RBI has also said that the median deposit rate has come down. Even in Indian Bank, we have been trying to match the liabilities and the cost of funds with the earnings that we have on the assets. Repo-linked loans have been launched for both the retail and MSME sector and all products are now available on the repo-linked rates. So with all this and the deposit rates coming down slightly, though, the Indian Bank hasn't reduced to a big extent. Our strength is in the core deposits and we have a good market share in South India and that's why we have gone slow in reducing deposit rates by keeping the interest of our senior citizen and long-term customers in the mind, instead, we are trying to improve efficiencies, so, that we can also reduce on lending and maintain the margins. Thus, it is a tuff task but the process is on and I am sure that we will be transmitting and giving even better interest rates to our customers.