After forex scam, we're doing internal audit of branches: Animesh Chauhan

Interview with Managing director and chief executive officer, OBC

Stepping up vigilance and checks, Oriental Bank of Commerce (OBC) is currently conducting an internal audit of its bank branches to monitor any sudden jumps and blips in transactions with an aim to avoid scams and frauds in the future. Animesh Chauhan, managing director and chief executive of the bank, tells Dilasha Seth after the announcement of second quarter results that he expects the bank's bad debts to come down in coming quarters with improvement in the economy. Edited excerpts

As a percentage of total advances, the gross non-performing assets (NPAs) rose to 5.7 per cent in the second quarter against 4.7 per cent in the corresponding period last year. What is your strategy to deal with the rising bad debts?

The NPA position has improved sequentially, but on an annual basis it has risen, as bad debts have been accumulating quarter after quarter. We have been very hard on recoveries. Improvement on a quarter-on-quarter basis is due to the hard effort put in by field staff. With the improvement in the economy, we may see upgradation of several accounts in the days to come, especially those focusing on the manufacturing and roads sectors. With overall advances growth improving in the coming quarter, the denominator also gets improved. So, unless some big accounts from the iron and steel sector or power sector slip, the numbers look good.

Do you expect stress from the power sector to come down in the coming months with government planning to restructure debts of state discoms? What are the sectors where you expect an improvement ?

Yes. The government is working very hard on state discoms debt restructuring. Once that is resolved, the entire power purchase will pick up, and we hope the power sector stress will come down. If we look at power the coal supply arrangement is well in place now. Production is alright, now it is the question of distribution. Steel still remains an issue. Several steps have been taken there also. If these sectors keep improving, threat of large accounts slipping will go down. We have seen significant improvement on the roads front.

Recently, the forex fraud of trade-related money laundering, involving several banks, including Bank of Baroda and even Oriental Bank of Commerce (OBC), came to light, exposing loopholes within the system. What are the checks and vigilances that you are putting in place to avoid such scams in future?

The fraud that happened through OBC accounts between 2006 and 2009 was reported by us in March 2010. On transactions in forex, we have three types of checks in place - anti-money laundering software that catches any abrupt jump, offsite surveillance system and there is concurrent audit of these branches. We are strengthening at all three levels. Already the process is on. With the scam coming out in a big way in Delhi, we are doing an audit from our internal audit system of all these branches. It is already on and should be over by mid-November. Whatever blips or sudden jumps we see, we will be screening them thoroughly and see if there is anything.

With the Reserve Bank of India cutting repo rates by 125 basis points this year, when do we expect the interest rate transmission from banks to the actual users?

The interest rate transmission will happen along with reduction in interest cost. We have been reducing the base rate consistent with the reduction in cost of funds. We have done it in three tranches already. If the cost of funds continues to reduce, we will be happy to cut rates The micro, small, and medium enterprises sector, which we are targeting, we have reduced our spread over base rate substantially. Therefore, this sector is benefiting not only from base rate cut, but also from the reduction in spreads. We have rationalised that quite substantially. So, where we are targeting growth, we are already passing on the benefits of rate cut.

So, does this mean we expect an interest rate cut by OBC in the next couple of months?

If cost of funds keeps going down as we have seen, we will certainly like to pass on the benefits. My net interest margin (NIM) this quarter is 2.76 per cent. I want NIM to be around 2.7 per cent, which gives enough margins. If NIM increases, we will pass it on.

Have you seen an improvement in demand this festive season?

We are seeing a pick-up in retail growth. Due to our schemes for MSMEs, there is an improvement there too. With economy picking up and car production on a rise, vehicle loans will go up. We hope in the next six months corporate credit will see some growth, which will pass on the economy as a whole, resulting in improvement in the housing loan sector. We expect a rise in credit book because of that. We expect our loan book to grow by 12 per cent this year. We hope to achieve it.