Margins will improve in 2-3 quarters: S K Jain

Interview with CMD, Syndicate Bank

Manipal-based Syndicate Bank’s net interest income has dropped, putting pressure on the lender’s profits. S K Jain, chairman & managing director (CMD) and the youngest to hold the post among public sector lenders, tells Manojit Saha and Abhijit Lele the changes he has introduced will be reflected from the first quarter of 2014-15. Edited excerpts:

Syndicate Bank reported a three per cent annual fall in net interest income for the quarter ended December. What led to the fall and how do you plan to address this?

We haven’t seen much loan growth, as evident from the fact that domestic advances grew only seven per cent annually. Also, loan demand was not spread through the quarter; most disbursements took place during the end of December. So, we lost interest payment during most of the quarter. We are addressing the situation by trying to spread loan disbursement through the quarter.

Since we were liquidity-surplus, we stopped taking bulk deposits about 15 days ago. Now, we have come to a borrowing position.

Any bank that wants to maintain net interest income has to be in such a position because if you have surplus liquidity, you do not earn. Now, we have decided unless our advances pick up, we will not take bulk deposits. We expect net interest income to improve from the first quarter of 2014-15.

In the third quarter, the net interest margin fell to 2.76 per cent from 2.9 per cent in the second quarter and 3.29 per cent in the year-ago period. Why?

The margin squeeze was primarily due to international operations. Our domestic margin was 3.2 per cent, while the international margin was only 0.3 per cent. This is mainly because we were unable to deploy the funds ($1 billion) we had raised via medium-term notes. However, now, foreign demand is picking up. While the margin might be 2.8 per cent this quarter, we see it improving in the next two to three quarters.

In absolute terms, gross non-performing assets (NPAs) have fallen sequentially.

We have contained the slippages. In the first quarter, slippages stood at Rs 1,200 crore; these rose to Rs 1,700 crore in the second. During the third quarter, these stood at only Rs 691 crore. We are trying to restrict NPAs below Rs 700 crore for this quarter. All big accounts have already been restructured; only small ones remain. I am quite confident there is no lumpy account in the system. However, there are some CDR (corporate debt restructuring) cases in the pipeline that may materialise before March.

For the April-December 2013 period, the bank’s restructured advances were Rs 1,600 crore. Where do you think this will stand by March-end?

Restructuring of loans worth Rs 600 crore is in the pipeline. Also, loans to the Andhra Pradesh Electricity Board are yet to be restructured. That is a big amount—about Rs 2,000 crore. If it comes in, half of it will be converted to debt. So, maybe about Rs 1,000 crore will come (as restructured loan) on account of one big account.

You have completed six months at the bank. What are the areas that need improvement?

Having understood this bank for the last six months, I found three major areas where it lagged. First, the information technology infrastructure needed a revamp. We have taken steps to improve these.

Also, a human resources initiative was missing. Talent identification and management grooming and training wasn’t a thrust area.

Third, there were no back-office capabilities created---neither in terms of asset nor liabilities. A lot of initiatives have been taken on this front. Earlier, 42-43 regional offices directly reported to the head office. Now, we have eight field general manager offices that focus only on developing business.

The bank had plans to raise Rs 1,500 crore through a qualified institutional placement. By when will you launch the issue?

We have written to the government for its permission. But since it wants to maintain the current shareholding, it may allow us to raise only Rs 200 crore, the amount it had infused in December.

Two state governments have already opted for cuts in power rates. Did this lead to apprehension?

So far, we haven’t felt any pressure. But if they go on like this, it will vitiate the entire restructuring process for state electricity boards, as it is with great efforts that they have agreed on certain terms---increasing rates and passing on benefits. Suppose this kind of a political decision comes into the system, I feel it will have a negative impact on the restructuring that has taken place for power distribution companies.