Q&A: Nupur Mitra, CMD, Dena Bank

'Credit delivery at high rates will affect loan quality'

Nupur Mitra took charge of Dena Bank as chairperson and managing director earlier this month. She shares her plans in an interview with T E Narasimhan and Somasroy Chakraborty on growing the businesses in coming quarters. Edited excerpts:

In which areas does Dena Bank need to improve performance?
It is a bank with good fundamentals. I think it can still improve in areas like retail and SME (small and medium enterprises). We have a strong presence in Maharashtra and Gujarat. Industrial activity is strong in these states and they are significant contributors to India's economic growth. My aim is to exploit this opportunity and build an edifice on the strong foundation. We are holding SME camps and working on reducing the loan processing time. We have identified branches with the potential for effective credit delivery. We are giving them new (loan disbursement) targets, especially at the micro-level.

In the present scenario, retail liabilities assume great significance. Bulk deposits are coming at a very high cost. I believe credit delivery at a profit over high-cost deposits will affect the asset quality of banks. Hence, we have decided to strengthen our retail deposit base.

Banks have turned cautious in lending to SMEs in this uncertain macro-economic environment. Are you comfortable with the quality of your SME loans?
I believe the SME sector can be profitable if one understands their needs properly and not try to squeeze them. If we can offer good rates with efficient service, I don't think they are going to default.

You plan to strengthen the low-cost retail deposit base. Are you going to raise your savings deposit rate?
Small and mid-sized private banks have gone for a rise in their savings deposit rates almost immediately after this was deregulated. The share of current account/savings account (Casa) deposits in their total deposits is very low and, hence, a rate rise will not have a great impact on profitability. On the other hand, banks with a high base of Casa deposits, including us, would have to come up with a model where we can pass on the benefit of a high savings deposit rate to our customers and, at the same time, protect our profitability. I think a rate hike is going to happen but not immediately. There could be some hit on banks' profitability.

Will there be a migration of savings deposits to mid-sized private banks because of higher rates?
Public sector banks have a very different kind of clientele, who are loyal and very comfortable with us. Many people in this country do not have access to banking service. If we are able to reach them, there will be enough space for everybody to operate profitably. I don't think there will be any mass migration from one bank to another because of difference in savings deposit rates.

What is your outlook on net interest margin (NIM) for this financial year?
As a banker, I'm very comfortable with an NIM of three per cent. We should not be too greedy, but we need to ensure our margin helps us sustain our operations. For this financial year, we have kept our NIM at three per cent.

What is your outlook on credit growth? Is there a scope for more rise in lending rates?
We will be able to grow our loans by 18-20 per cent. Unless the cost of funds go up, there is no point in increasing our lending rates. We have to see that our borrowers are able to service their loans. We don't want to create non-performing assets, even if it slightly squeezes our margin. I don't think there will be a lending rate hike in the near term.