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| Q&A: Nagesh Pydah, Oriental Bank of Commerce | | 'We may go in for a follow-on offer this year' |
| Manojit Saha / Mumbai Apr 12, 2011, 00:24 IST |
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 The government’s move of raising its stake in Oriental Bank of Commerce (OBC) to 58 per cent has given the bank headroom to dilute government stake to raise equity capital. Chairman and Managing Director Nagesh Pydah tells Manojit Saha the bank may come out with a follow-on public offer this financial year. Edited excerpts:
With inflation still above the comfort level of the Reserve Bank of India (RBI), more rate hikes are expected. Banks on the other hand, are yet to pass on the previous rate hike (in March) to customers. Do you think banks would again absorb a hike if RBI raises policy rates further?
The decision to hike rates would depend on the liquidity situation. From the beginning of the new financial year, liquidity has returned to the system. Overnight rates have also fallen. The liquidity situation will be steady, as the government would release money for development expenses. So, banks may not pass on any rise in interest rates to customers.
Is there a case for increasing deposit rates further?
I think deposit rates have peaked. Increasing the rate further may not be sustainable. If we increase deposit rates, loan rates also need to be raised to maintain the margins. There is no case for increasing lending rates, since such a step could exert pressure on asset quality.
How did OBC's net interest margin (NIM) fare in 2010-11?
Margins have improved substantially during the year. During the first quarter of 2010-11, NIM stood at 2.8 per cent, which later became 3.25 per cent for the April-December period. For the full year, we expect NIM at or above 3.2 per cent.
How much did the business grow in the last financial year? What are your projections for the current financial year?
The bank recorded a growth of 16 per cent in both credit and deposit in 2010-11. Total business was worth Rs 2,37,000 crore as on 31 March, 2010, compared with Rs 2,02,000 in the same period of the previous financial year. We aim to reach the Rs 3,00,000-crore mark by the end of the current financial year.
What will the effect of the government's recent capital infusion be on its stake in the bank? Will you consider diluting government stake to tap the capital market?
The government had infused Rs 1,740 crore in the bank and as a result, its stake rose from 51.9 per cent to 58 per cent. So, now we have headroom to raise capital by diluting the government’s stake. We may go in for a follow-on public offer during the financial year, depending on ground realities.
The share of low-cost deposits in the bank’s total deposits is lower, compared to that of its peers. How do you plan to increase it?
The share of current and saving account (Casa) deposits in total deposits is 25 per cent. We have started an initiative to improve the this. We are asking our corporate clients to open salary accounts for their employees in our bank. We are also targetting pensioners’ accounts. We hope to raise the share to 27-28 per cent by the end of the year. We also aim to record a 30 per cent growth in Casa in the current financial year.
What steps are you taking to improve the quality of assets?
We plan to increase the provision coverage ratio further to strengthen our balance sheet. Right now, the coverage ratio is 77 per cent, against the regulatory requirement of 70 per cent. We plan to increase it to 80 per cent by March, 2012.
OBC had planned to shift its head office. What is the status on that?
Yes, we are shifting our head office from Connaught Place in Delhi to Gurgaon. This would offer two benefits: One, we would save Rs 7 crore annually on rent. Secondly, since the office in Gurgaon will be in our own building, we can show depreciation of Rs 7 crore and this would give us a tax advantage. In addition, close proximity to the airport would also be a benefit, since our clients do not have to travel all the way to Delhi. We will shift our operations to the new office in Gurgaon by June-July this year.
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