We will not get into something that we do not understand: Melwyn Rego

Interview with MD & CEO, Bank of India

Melwyn Rego, managing director and chief executive officer of government-owned Bank of India, wants it to be known as a retail-focused bank, leveraging on its 5,000-strong branch network. He talks on this and related matters with Abhijit Lele and Anup Roy. Edited excerpts:

You are shrinking your corporate portfolio. What’s your plan?

Earlier, we had 56 per cent of our (loan) portfolio as corporate and 44 per cent was retail (individual). By March, the retail share had increased to 49 per cent and corporate has dropped to 51 per cent. The target, an ambitious one, is that in one to one and a half year, our retail (proportion) would be 55 per cent and corporate would be 45 per cent. If we have 5,000 branches, we should have a strong retail franchise, rather than getting into a chunky loan which increases the concentration risk. Not stopping of corporate lending but the rate of growth here would be far lower than the growth in the retail business.

Where will you cut your exposure?

We will not get into something that we do not understand. For example, oil or gas exploration, or offshore mines, which we do not have any understanding on and where we do not have even control over. These are absolutely something that we will keep away from.

Isn’t your recovery target of Rs 17,500 crore too ambitious?

These are mindset issues. This problem of non-performing assets (NPAs) started with the March 2015 quarter. Prior to that, the employee mindset was on growth. We have to change that; it should be one of NPA management. The number is achievable.  

You said you’d be reviewing your subsidiaries and international operations.

We will be evaluating the performance of each of our international subsidiaries. Wherever we find it is not giving us the desired return, we’d be open to selling these. In addition, we’d be looking at rationalising the international branch network if it doesn’t contribute to the bank profits. Whenever there is more than one Indian bank and the business is not adequate, I think it makes sense for the banks to either sell out or buy the branches from each other, so that overall gain for the Indian banking sector is there. This exercise is on and is part of the strategy for this year.

We would also not look for business that is un-remunerative and gives a very thin spread, like buyers’ credit. Same way, we have subsidiaries and joint ventures. We will look at each of these and if we find that it is not worthwhile for us to do business, we will sell off these subsidiaries. We plan to raise Rs 1,000 crore through sale of subsidiaries this financial year.

Would you raise bonds from abroad?

We are geography-agnostic. Wherever we get cheaper funding, we would go and raise money there. Whether it is Additional Tier-I or Tier-II bonds, we’d look at what would be the cost on a fully hedged basis. At the moment, it looks like the rupee market would give us a better rate.

Do you think the Reserve Bank’s Asset Quality Review exercise was too harsh or was it necessary?

To build a strong banking system and enhance the long-term value of banks for investors, there is need for a clean-up. You can always debate if it should have been done now or in phases. Normally, as the saying goes, the best time to fix the roof is when the sun is shining. But, how long can you keep deferring something? It’s a matter of debate on timing and not whether it was required or not. It certainly was required.

What will happen with these huge bad debts that Indian banks have accumulated in their books? What is the resolution mechanism?

It’s not one clear solution that fits all. Each case should be analysed and dealt with differently. RBI has put in an enabling mechanism — SDR, 5/25, refinancing, system of classification, early warning system, etc. What is most heartening is passage of the Bankruptcy Act.

How do you motivate your staff in a culture where the pay is not market-related?

In the past, people had to wait a number of years for promotion. Today, a person who joins in Scale-I and gets through at the first attempt can aspire to become an AGM (assistant general manager) within 12-14 years and I think that is motivation enough. I adopt an open-door culture and meritocracy, where I will cut across channels. A general manager need not head a function. I can make a DGM in charge of some part. If I want something and I feel a Scale-IV officer can give me that, I will call him directly.