'There is enough business to tap'

Q&A: R S REDDY

Following successful stints at Bank of India and Union Bank of India, R S Reddy has taken over as chairman and managing director of Andhra Bank. In an interview with Abhijit Lele, he discusses his plans for the bank. Excerpts:

You have taken charge at a time when the economic outlook is not so good. Is the bank working to lower its ambitions?

The economic environment is challenging, but this does not mean that the bank has to think about scaling down growth objectives or plans. The bank has a strong presence in the state (Andhra Pradesh), which has seen strong investment and entrepreneurial activity. Hence, there is enough business to tap.

How will you describe the pace of growth now?

It is slow. We have the capacity to grow at a much higher pace, though. Short-term loans and the regular business, which can be garnered through a limited set-up and a few experienced hands, is not enough. People (the bank staff) should now reach out to get corporate and retail business.

What are the priority items?

Speeding up the roll out of a technology platform (core-banking solutions) is the first priority as the bank lags behind in this area. The bank went through pains due to problems in transiting to a new platform. Without a strong IT backbone, we cannot introduce new liability products. 

Another aspect that merits prompt attention is sensitising people to the need to change (attitudes and work culture) in highly-competitive market conditions. At present, our image is that of a small and inward-looking bank. We have allowed customers to drift away. We need to get going in the next three-four months. As for the work style, one needs to remember that we are dealing with soft issues.

So, will the bank take a while to prepare for substantial changes?

Teamwork can speed up decision-making. First, it helps cut down the response time, especially for large credit proposals. We have to get rid of some archaic procedures that contribute to the delay in work. The response time will be brought down to 15 days in phases.

With margins under pressure, banks are focusing on fee-based income to maintain profitability. What do you plan to do?

The bank has a robust third-party product business. Last year, we earned Rs 80 crore. This year, we expect it to grow to Rs 150 crore. Apart from mutual funds, the focus will be on selling insurance products (the bank holds a stake in a life insurance company floated by the Bank of Baroda and Legal & General of UK). 

We are also going to step up our credit card business. In the last two years, the growth in this segment was restrained due to fear of defaults. Our business model is different from private banks, which aggressively sell credit cards through various channels, especially direct sales agents, at the risk of ignoring the customer’s background and ability to pay. We will approach only our customers after a due diligence has been conducted on them. Hence, there will not be a sharp rise in defaults.

Keeping the Basel-II norms in mind, how much capital do you plan to raise in the near future?

The capital adequacy ratio (CAR) at end of June 30, 2008 stood at 11.61 per cent. The bank’s tier-I ratio has been well above 8 per cent since 2005-06. We propose to raise Rs 600 crore through lower tier-II subordinated bonds.