'Emphasis on Casa means better margins for the bank'

Q&A: Ty Prabhu, Cmd, Oriental Bank of Commerce

Tekkar Yashwanth Prabhu, who took charge chairman and managing director of Oriental Bank of Commerce (OBC) in late August, has been quick to adjust to the new surroundings. In his first interview after taking charge, Prabhu tells Manojit Saha that he now understands that the bank needs to improve the share of low-cost deposits and increase its branch presence. Excerpts:

What are your immediate priorities for the bank?
My foremost priority is to improve the share of current account and savings account (Casa) in total deposits. Our Casa share is lower than other public sector banks. We should be able to reach 25-26 per cent (of total deposits) by the end of the current financial year (from 23 per cent now). By September 2010, we are trying to take the share of Casa deposits to 28 per cent.

What are you doing about it since there is going to be competition from other asset classes as well?
We have only 1,419 branches at present. This year, we are opening 117 more branches. I want to ensure that these branches are opened by the end of December. These new branches will help improve the share of low-cost deposits. Last year, we recruited 1,400 people who are undergoing training at various branches and that should help our branch rollout plan. We have also launched new products that will help mobilise Casa. Our margins are among the lowest in the industry. An emphasis on Casa will also mean improved margins. Our NIM (net interest margin) is very low (1.9 per cent at the end of June). The whole objective of focusing on Casa is to improve NIM. Our aim is to raise NIM to over 2 per cent by December.

Do you see scope for a deposit rate cut, which will also help you improve margins?
Our asset-liability committee regularly meets and reviews the position. At present, our rates are not very high. It is in line with what our peers are offering. Immediately, we do not see any cut in deposit rate.

With government holding in OBC at 51.1 per cent, there is no scope for stake dilution to raise capital. Have you asked for capital infusion by the government?
We have made a presentation to the government for about Rs 1,000 crore as fresh capital. We do not know the modalities as yet or when the capital will be provided. The whole idea of capital infusion is to ensure that we maintain a capital adequacy ratio of around 12.5 per cent with the Tier-I ratio at around 9.5 per cent.

With additional capital, do you intend to focus more on retail, where your exposure is not very high?
My message has been very clear that micro and medium enterprises, agriculture and retail will be our focus areas. Our retail portfolio is very low as of now and growing at 20 per cent. We are seeing a lot of demand for home loan. That is the reason why we want to be in that market. We want to finance clients who want to buy homes. We have also announced a 50 basis points reduction in home loans under a special three-month offer.

What about lending to the real estate sector since RBI has sounded a note of caution?
We are not lending aggressively to the real estate sector. We have certain caps for real estate. Even earlier, we were very selective.

So far credit growth has been low. What targets you have set for yourself?
In the current year, we aim to grow by at least 2-3 per cent more than the industry average. So, we should be growing at 22-23 per cent. Till September this year, our advances and deposits had registered a growth of 22-23 per cent.

Do you expect RBI to announce an increase in policy rates in the monetary policy review?
Since the economy is showing signs of revival, the existing policy stance should continue for some time. I don't see major changes happening in this policy.

Do you see government borrowing putting pressure on rates?
I don't think so because there is adequate liquidity available in the system.