Bank of India: The bank that came in from the cold

Till a few years ago, shareholder value was a buzzword heard at analysts’ meets, press conferences and annual general meetings—mostly of private sector corporations. Valuecreation wasn’t something you expected to be too high on the priority list of head honchos of public sector undertakings (PSUs). Until the likes of T.S. Narayanasami burst onto the banking scene. Sitting in his fifth floor corner office at the swank allglass Star House, the headquarters of Bank of India (BoI) in suburban Mumbai’s Bandra-Kurla complex, the 59-year-old Chairman & Managing Director is virtually glued to a terminal that throws up stock prices in real time. “This is my bread and butter,” quips Narayanasami.

Name: T.S. Narayanasami Age: 59 Designation: Chairman & MD, Bank of India (BoI) Previous stints: CMD of Andhra Bank (April 2004-May 2005); CMD, Indian Overseas Bank (IOB), before joining BoI Notable achievements: Achieved net profit of over Rs 1,000 crore at IOB in 2006-07 At the forefront of acquisition of Bharat Overseas Bank Expanded Andhra Bank outside the state Brought down NPAs from 4.60 per cent to 2.38 per cent in a year

That may make him sound like a bit of a common day trader, fixated on price movements and little else. But Narayanasami has been busy with a lot, lot more—and that’s reflected in BoI’s performance. The BT-KPMG Best Banks study covering some 60 banks has thrown up BoI as the winner, leaving private bank biggies like HDFC Bank (BT-KPMG’s Best Bank for the past four years now), ICICI Bank as well as public sector giants like the State Bank of India and Punjab National Bank behind. BoI is one of the few banks to have survived the carnage on Dalal Street. Its stock was quoting at Rs 250 last fortnight, down by just 32 per cent from January levels when the indices were at their peak; the stock markets have since fallen by 56 per cent.

The keen eye on Dalal Street has also allowed Narayanasami to raise some precious capital. In February, he collected a little over Rs 1,300 crore by placing shares with institutions at Rs 350 per share, through a follow-on offering. The CMD can be complemented for his timing, for that was when the benchmark Sensex had just begun to beat a furious retreat from peak levels of 21,000-plus. Analysts attribute the stock performance to BoI having one of the highest returns on equity amongst state-owned banks.

The stunningly good run that Narayanasami is enjoying is reflected in his body language and his conversation, which revolves around performance. “Performance is not just the outcome of any single factor,” he says, before adding with a flourish: “Every parameter is critical and important in success in banking.”

It’s not for nothing that Narayanasami is being touted, in some circles, as the next Deputy Governor at the Reserve Bank of India, representing commercial banks. He is expected to come in the place of V. Leeladhar, who is due to retire at the year-end.

Success isn’t a stranger to Narayanasami. The man has two triumphant stints as CMD at the Hyderabad-based Andhra Bank and, later, at the Chennai-based Indian Overseas Bank (IOB). After assuming charge at IOB, he took the bank to a landmark net profit of a over Rs 1,000 crore in FY 07. He also played a key role in the acquisition of Bharat Overseas Bank. At Andhra Bank, Narayanasami expanded the bank beyond Andhra Pradesh and propelled the business from Rs 36,000 crore at the time of taking charge to Rs 45,000 crore for the year ended March 2005.

At BoI, Narayanasami clearly hasn’t forgotten his winning ways. He describes how the bank is making a mark on some key parameters at a time when most of BoI’s counterparts are grappling with a slowdown and pressure on profitability. For instance, the CMD points out, better NPA management has resulted in lesser provision, “which ultimately adds to profitability”.

The bank trimmed its net NPAs from a high of 0.95 per cent in 2006-07 to a low of 0.52 per cent. Similarly, an increased focus on feebased income creates an additional revenue stream for the bank and also adds to profitability. The bank’s non-interest income increased by a whopping 35 per cent, from Rs 1,563 crore in 2006-07 to Rs 2,117 crore last year. “This is going to be a major focus area for us,” says Narayanasami. “If you perform on every parameter, it can contribute to revenues as well as profitability,” adds the banker, who started his career some 39 years ago as a probationary officer in Union Bank of India.

Narayanasami’s success mantra is to look within and make the best of existing resources. The biggest strength of any state-owned bank in India is its branches. Narayanasami set his eyes on the 2,884 branches when he stepped into the bank’s headquarters 18 months ago. “We have segmented branches into resource centres,” says Narayanasami, who is in constant touch with his 48 zonal offices on a regular basis. As a first step, he refocussed the branches as per client needs.

For instance, those in residential areas would concentrate on savings accounts, those in business and industrial areas would try to realise the potential in current accounts, and the branches in rural areas (where agriculture is the main activity) would focus on prioritysector lending.

The public sector and customer service aren’t contradictions in terms any more—not at least at BoI. But not only are employees being trained to handle the customer better, the branches are also being encouraged with incentives to garner more deposits. Result: BoI boasts of one of the highest profits per employee amongst the 20-odd stateowned banks, at Rs 4.95 lakh per employee, next only to Corporation Bank, Union Bank of India and Oriental Bank of Commerce.

As Narayanasami knows, lowcost deposits (a 32 per cent share in total deposits) by themselves aren’t adequate to support the bank’s huge lending requirements. That’s why BoI has started attracting term deposits in a big way. “We have been running campaigns for raising term deposits to bridge the gap,” he says.

The other focus area on the revenue side is to generate more noninterest income by way of fee-based income through selling mutual funds and insurance policies. “We are positioning our branches as a major source of generating fee-based income,” says Narayanasami.

He has, indeed, put the bank on a stronger wicket with new businesses lined up to take advantage of the bank’s large customer base, of over 27 million. A life insurance venture with Union Bank of India and Japanese partner Dai-ichi Mutual Life Insurance Company is on the fast track. A foray into asset management will also get finalised soon, while there are plans afoot to enter into credit cards. The challenge, clearly, is to sustain the growth momentum.

Narayanasami maintains that the bank will sustain its profitability. But analysts, like Punit Srivastava of Enam Securities, aren’t so sure. “There are challenges like the base effect since the bank has grown consistently in the past in terms of advances, revenues and profits,” says Srivastava. Adds Darpin Shah, Research Analyst at Dolat Capital Market: “The challenges for the bank could be the rising net NPAs and also directive credit to certain sectors as directed by government.”

BoI has shown little signs of flagging in the past two quarters, with both revenues and profits up smartly over the previous corresponding periods. The third quarter could, however, prove to be Narayanasami’s biggest test yet. Ashok Jainani, Vice President (Research & Market Strategy) at Khandwala Securities, says due to the freeze in overseas credit markets, the bank will find it difficult to raise overseas deposits. “We expect the bank to slow down on its international business,” says Jainani. Adds V.K. Sharma, Head (Research), Anagram Stockbroking: “The real test of Bank of India would be now in the current challenging times.”

Retail growth across the industry is slowing. So, will Narayanasami’s performance mantra work this time, too? Watch this space.