Credit where it is due
Public sector banks dominate the best banks rankings, with a clutch of them making big gains.
Madhava Kottari, 35, owns a small paan beeda shop on Car Street in Mangalore, and earns a profit of Rs 350-Rs 400 a day. In the 15 years that he has been running the outlet, he never thought about opening a bank account. Until a few weeks ago, when Corporation Bank officials approached Kottari with an offer to open a savings bank account in his name at a nearby branch. SB Smile, the scheme intended for small businessmen like him, earns the account holders the highest possible returns as it treats savings above Rs 5,000 as term deposits.
Ramnath Pradeep, Chairman and Managing Director, Corporation Bank, has kick-started the SB Smile campaign to rebuild the bank's dwindling CASA (current account savings account) funds - at 24 per cent it was one of the lowest in the banking industry as of March 2010; banks like Indian Bank and Canara Bank had a CASA of 33 per cent and 30 per cent, respectively. "There are large numbers of small businessmen without a bank account. Many of them will grow their turnover and hence, their bank balance. I thought they are a good source to build my CASA,'' says Pradeep, who took over as CMD in September.
Such out-of-the-box thinking is just one of the reasons for Corporation Bank being able to climb three places to No. 5 in the BT-KPMG Best Banks rankings in the large bank category. The bank has done well across all the main parameters of growth, asset quality and productivity and efficiency (see tables on page 108 for the details). Now it is stepping on the gas. The target is to grow the balance sheet from Rs1.67 lakh crore to Rs5 lakh crore by 2014-2015 by adding 200 branches every year to the current strength of 1,170. The bank, which has 28 per cent of its operations in Karnataka, is planning to commence or strengthen its presence in states where GDP growth is high. Alongside, Corporation Bank will add 900 ATMs to its existing network of 1,160 by next December.
That's the power of public sector banks, or PSBs, which dominate the Top 10 in the BT-KPMG large banks category (banks with a balance sheet size of over Rs50,000 crore). In the Top 10, as many as eight are PSBs, with Axis Bank (No. 1) and HDFC Bank (No. 3) being the only private sector banks. The biggest gainers: Andhra Bank, which has pole-vaulted 15 places to No. 6; Allahabad Bank, which has climbed from No. 24 to No. 8; State Bank of Hyderabad, from No. 17 to No. 9; and Canara Bank, up from No. 14 to No. 10.
So what explains this dominance? One answer: PSBs are still basking in the glow of being perceived as bastions of safety vis--vis their private sector and foreign counterparts since the global financial crisis of 2008. As T.M. Bhasin, Chairman and Managing Director of Indian Bank, puts it: "If earlier I was getting just 10 per cent of my new accounts from the younger generation, that ratio has now shot up to close to half in the aftermath of the financial crisis."
Indian Bank may have slipped a notch (because other banks did better) in the BT-KPMG rankings, but most PSBs that have gained have benefited from this changing - if arguably shortterm - dynamic. Proof of the pudding: Allahabad Bank, the biggest gainer with a jump of 16 places. The bank tops the charts on the parameter of growth in fee income, is ranked No. 4 on three-year compounded average growth in operating profits, and No. 5 for its absolute increase in return on assets. The target of J.P. Dua, Chairman and Managing Director, Allahabad Bank, is to improve the proportion of fee-based income from 15 per cent to a fifth of total income with 30 per cent growth every year.
Dua is counting on sale of gold coins, a syndication cell for mid-cap companies (with a market capitalisation between Rs 500 crore and Rs 2,000 crore) and selling life insurance policies for Life Insurance Corporation to maintain a scorching growth in fee income. The bank's 2,400-strong branch network will be leveraged in a big way for this purpose - and for other ones too. "Whether in loan recovery or in growing fee income, every branch must be involved," says Dua.
Let's move south to Andhra Bank, which has been able to achieve growth without compromising its asset quality - the main reason for its big leap. An emboldened R. Ramachandran, the bank's CMD, is now thinking expansion - into neighbouring states - even as he attempts to juice out the potential of existing branches. "Could there be anything that other banks can do that we can't,'' asks Ramachandran. "While a 25 per cent growth in deposits and advances is desirable and what we aim to achieve, I will be very happy if we can achieve a consistent 20 per cent growth,'' adds the Chairman.
A significant move at the top comes from Punjab National Bank, or PNB, which has moved a spot from No. 3 to No. 2, thanks to strong growth in deposits, operating profits and net interest margins. Chairman and Managing Director K.R. Kamath believes that his biggest challenge is to maintain the momentum. "One must put on a golden platter what one inherited on a silver platter and then pass it on," says Kamath, with a grin. He has a lot of time to do that. Kamath picked up the reins at PNB a year ago, and has another four years to go.
PSBs are going where few have dared to go before. Indian Bank has set up ATMs in Dharavi in Mumbai, which has become famous as the largest slum in Asia. Business is clearly booming there, which is why the bank is considering putting up more ATMs in regional languages.
Indian Bank has managed Rs 75 crore of business with Rs 40 crore in deposits from Dharavi alone. The bank has followed the Know Your Customer (KYC ) norms to do due diligence on its clients in Dharavi. Now that is what might be called aggressive financial inclusion.
The challenges
Such self-assured initiatives from state-owned banks would have been almost unthinkable five years ago. Yet, often aggression leads to recklessness, as was witnessed in the case of Bank of India this year, which has slipped from No. 1 in the 2008 study to No. 2 last year to No. 20 in the latest study. Indeed, it is no time for the PSB pack to rest on its oars. One crucial challenge it has to take on relates to the avalanche of retirements that are due at senior levels at some of these banks. PNB, for instance, has identified about 100 officers from middle management who have another 10 years to go for retirement to fill the vacuum at the top.
"They are being groomed in terms of training and exposure so that they are complete bankers," says Kamath. And at Indian Bank the career span from the entry level to general manager has been crunched from 25 years to 15 years in a bid to cope with an impending shortfall in top talent.
Another challenge for the PSB pack is to make up for revenue streams that have disappeared with the introduction of National Electronic Fund Transfer and Real Time Gross Settlement mechanisms. That means fee income from services such as providing a demand draft are now fast vanishing. PNB, for instance, has branched out into areas such as sale of gold coins and world travel cards. It is also beefing up its presence in countries that have a sizeable Punjabi diaspora.
But going overseas has its disadvantages - at least as far as moving up the BT-KPMG Best Banks rankings is concerned. Bank of Baroda stays at its previous year's rank of No 4. And that may be because a quarter of its business comes from international markets. Chairman M.D. Mallya points out that comparing BoB with largely domestic-driven banks is a bit unfair. "Globally, net interest margins are much lower than the levels prevalent in India. So apples should be compared with apples and not oranges."
But then again BoB would have realised that international growth is fine, but as the Indian economy grows at a scorching pace, the prospects for the domestic banking industry can only get brighter. Doubtless, the PSBs are on to a good thing. But in the years ahead competition will only increase - from all quarters.
For one, the hangover of the 2008 credit crisis will eventually wear off, and the private majors will come out with all guns blazing in both the institutional as well as retail markets. The top foreign banks could also begin to chip away at the PSB hegemony if the Reserve Bank of India allows them to expand at a faster pace, or to make acquisitions.
And the biggest threat could come from the big corporations that are closely eyeing the banking sector. For now, though, the sun is shining on the PSBs, and their tens of thousands of employees have acknowledged the threats. As Allahabad Bank's Dua says: "All employees today speak one language - that of growth."
Ramnath Pradeep, Chairman and Managing Director, Corporation Bank, has kick-started the SB Smile campaign to rebuild the bank's dwindling CASA (current account savings account) funds - at 24 per cent it was one of the lowest in the banking industry as of March 2010; banks like Indian Bank and Canara Bank had a CASA of 33 per cent and 30 per cent, respectively. "There are large numbers of small businessmen without a bank account. Many of them will grow their turnover and hence, their bank balance. I thought they are a good source to build my CASA,'' says Pradeep, who took over as CMD in September.
 R. Ramachandran CMD, Andhra Bank Big move: 15 places to No. 6 Trigger: Balanced growth and superior asset quality Could there be anything that other banks can do that we can't? |
That's the power of public sector banks, or PSBs, which dominate the Top 10 in the BT-KPMG large banks category (banks with a balance sheet size of over Rs50,000 crore). In the Top 10, as many as eight are PSBs, with Axis Bank (No. 1) and HDFC Bank (No. 3) being the only private sector banks. The biggest gainers: Andhra Bank, which has pole-vaulted 15 places to No. 6; Allahabad Bank, which has climbed from No. 24 to No. 8; State Bank of Hyderabad, from No. 17 to No. 9; and Canara Bank, up from No. 14 to No. 10.
So what explains this dominance? One answer: PSBs are still basking in the glow of being perceived as bastions of safety vis--vis their private sector and foreign counterparts since the global financial crisis of 2008. As T.M. Bhasin, Chairman and Managing Director of Indian Bank, puts it: "If earlier I was getting just 10 per cent of my new accounts from the younger generation, that ratio has now shot up to close to half in the aftermath of the financial crisis."
Dua is counting on sale of gold coins, a syndication cell for mid-cap companies (with a market capitalisation between Rs 500 crore and Rs 2,000 crore) and selling life insurance policies for Life Insurance Corporation to maintain a scorching growth in fee income. The bank's 2,400-strong branch network will be leveraged in a big way for this purpose - and for other ones too. "Whether in loan recovery or in growing fee income, every branch must be involved," says Dua.
Let's move south to Andhra Bank, which has been able to achieve growth without compromising its asset quality - the main reason for its big leap. An emboldened R. Ramachandran, the bank's CMD, is now thinking expansion - into neighbouring states - even as he attempts to juice out the potential of existing branches. "Could there be anything that other banks can do that we can't,'' asks Ramachandran. "While a 25 per cent growth in deposits and advances is desirable and what we aim to achieve, I will be very happy if we can achieve a consistent 20 per cent growth,'' adds the Chairman.
| The one that missed out A drop in net interest margins and a decline in yields on advances resulted in Bank of India plunging from No. 2 to No. 20. The public sector bank or PSB pack stole the show in the BTKPMG Best Banks study for 2010. An exception: Bank of India or BoI. The bank that was No. 2 in 2009, and top dog the year before, finds itself way down the rankings at No. 20. Reason: A decline in profits and yields coupled with higher provisioning for non-performing assets or NPAs. BoI's operating profits in 2009-10 were lower by 13.78 per cent over the previous year, dragging down its rank to 28th out of 31 banks with a balance sheet size over Rs 50,000 crore. And on the bad assets front, the bank's total NPA to growth ratio - which is the addition to NPAs during the year as a percentage of average net advances - was one of the highest at 2.67 per cent, giving it a rank of No. 27. The explanation for the fall is available in the latest annual report of the bank, in which Chairman and Managing Director Alok K. Mishra says, "The bank's profit was impacted by a drop in the net interest margin mainly because of high-cost deposits picked up during the earlier part of the year and a decline in the yields on advances.'' The chairman of a rival PSB thinks the bank will reemerge from the fall because of the customer goodwill it enjoys. NPA quality can be improved - and indeed BoI is doing exactly that - but the bank has to be careful that the goodwill never gets eroded as that damage will be irreparable. |
A significant move at the top comes from Punjab National Bank, or PNB, which has moved a spot from No. 3 to No. 2, thanks to strong growth in deposits, operating profits and net interest margins. Chairman and Managing Director K.R. Kamath believes that his biggest challenge is to maintain the momentum. "One must put on a golden platter what one inherited on a silver platter and then pass it on," says Kamath, with a grin. He has a lot of time to do that. Kamath picked up the reins at PNB a year ago, and has another four years to go.
 K.R. Kamath CMD, Punjab National Bank Big move: One place from No. 3 to No. 2 Trigger: Leader amongst public sector banks in terms of CASA, net interest margins and cost/income |
Indian Bank has managed Rs 75 crore of business with Rs 40 crore in deposits from Dharavi alone. The bank has followed the Know Your Customer (KYC ) norms to do due diligence on its clients in Dharavi. Now that is what might be called aggressive financial inclusion.
The challenges
Such self-assured initiatives from state-owned banks would have been almost unthinkable five years ago. Yet, often aggression leads to recklessness, as was witnessed in the case of Bank of India this year, which has slipped from No. 1 in the 2008 study to No. 2 last year to No. 20 in the latest study. Indeed, it is no time for the PSB pack to rest on its oars. One crucial challenge it has to take on relates to the avalanche of retirements that are due at senior levels at some of these banks. PNB, for instance, has identified about 100 officers from middle management who have another 10 years to go for retirement to fill the vacuum at the top.
 Ramnath Pradeep CMD, Corporation Bank Big move: Three places from No. 8 to No. 5 Trigger: Good asset quality, productivity and efficiency |
Another challenge for the PSB pack is to make up for revenue streams that have disappeared with the introduction of National Electronic Fund Transfer and Real Time Gross Settlement mechanisms. That means fee income from services such as providing a demand draft are now fast vanishing. PNB, for instance, has branched out into areas such as sale of gold coins and world travel cards. It is also beefing up its presence in countries that have a sizeable Punjabi diaspora.
But going overseas has its disadvantages - at least as far as moving up the BT-KPMG Best Banks rankings is concerned. Bank of Baroda stays at its previous year's rank of No 4. And that may be because a quarter of its business comes from international markets. Chairman M.D. Mallya points out that comparing BoB with largely domestic-driven banks is a bit unfair. "Globally, net interest margins are much lower than the levels prevalent in India. So apples should be compared with apples and not oranges."
But then again BoB would have realised that international growth is fine, but as the Indian economy grows at a scorching pace, the prospects for the domestic banking industry can only get brighter. Doubtless, the PSBs are on to a good thing. But in the years ahead competition will only increase - from all quarters.
For one, the hangover of the 2008 credit crisis will eventually wear off, and the private majors will come out with all guns blazing in both the institutional as well as retail markets. The top foreign banks could also begin to chip away at the PSB hegemony if the Reserve Bank of India allows them to expand at a faster pace, or to make acquisitions.
And the biggest threat could come from the big corporations that are closely eyeing the banking sector. For now, though, the sun is shining on the PSBs, and their tens of thousands of employees have acknowledged the threats. As Allahabad Bank's Dua says: "All employees today speak one language - that of growth."
