We're looking to hire 1,700 bankers this year: Central Bank of India MD

Rao says he doesn't foresee much flight of CASA money into term deposits as deposit rates are hiked

Central Bank of India, which recently exited the Prompt Corrective Action (PCA) regime, will shape the branch network based on viability, its Managing Director and Chief Executive Officer M V Rao tells Abhijit Lele. He says the bank is aware of the limitations of discovering the true value of its listed shares as there is very little floating stock in the market. Edited excerpts:     

What does exiting the PCA framework mean for the bank?

The PCA framework helped the bank grow in a more orderly and controlled way. The limitations imposed under the PCA made the bank compliant on qualitative issues. That is going to help the bank in the future.

The factors that contributed towards the imposition of the PCA – that is the gaps in the policy framework, processes, or internal control, underwriting standards – have been addressed. Ultimately, the net result will be positive and that is what we have been witnessing for the past five quarters. On that basis, we requested the Reserve Bank of India (RBI) and it moved the bank from the PCA framework.

What will your approach to business be now?

Whether the bank is under PCA or not is not going to change the business model. If you see, the balance that the bank has brought into the credit book regarding retail, agriculture and micro, small, and medium enterprises (RAM) and corporates will be maintained in the proportion of 65 per cent to 35 per cent. There may be a five per cent difference either way, depending on the circumstances. 

The bank is laying emphasis on the risk weighted assets that it is acquiring. Though total advances are Rs 1.89 trillion, my risk weighted assets are 65 per cent only. That means whatever assets banks are acquiring are high-rated accounts having low-risk weights. This is being done because the share of Current Accounts and Saving Accounts (CASA) is 51 per cent and cost of deposits is one of the lowest in the industry.

So, I have that advantage of acquiring good rated accounts with low pricing. It is a trade-off between rate of interest and returns. When quality (of assets) is improving we are satisfied with the low rate of interest while acquiring high quality assets.    

As we are entering the second half of the financial year, banks will not have the luxury of low interest rates, especially on deposits. Would the advantage of a high share of CASA continue when deposit rates rise?

Going forward, the hardening of rates will definitely have an impact. There will be upward revision in interest rates with implications for returns on assets that the bank is seeking from loans. As for policy repo rate, when it changes that is immediately transmitted to customer loans with repo as benchmark. About 32 per cent of advances are linked to the repo rate.

As far as loans under MCLR are concerned, when deposit rates are hiked the effect comes with a lag. That increase in lending rate will not be to the extent (in magnitude) of repo rate increases.

Actually, CASA has 51 per cent share in total deposits. I don’t foresee much flight of CASA money into term deposits. There may be some effect, which we have to wait and see.

How will things change for the bank now that it has been freed from restrictions, especially on branch expansion and recruitment?

As far as the brick-and-mortar branches are concerned, there is continuous evaluation of their viability. The new principle that we have brought in is profitability of each unit— the branch, ATM, or the unit run by the business correspondent (BC) as well as the Point of Sale (POS) machine. Each unit should be profitable.

Whenever we feel that branches are incurring losses, we are assessing their viability, business potential and command area of operations. If we are veering towards a conclusion (for closure), they are being merged with nearby branches instead. If there is no branch nearby and business is low, then we are putting in place a fixed point BC unit that will be treated as a banking outlet. The bank is making 32 services available through the BC channel.

How many branches have been rationalised and how will the network be shaped in the days ahead?

This quarter we have given the go-ahead for the merger or closure of 12 branches in different states. It is a very low number. Since the PCA was imposed in 2017, around 170 branches have been closed.

In terms of opening new branches in bigger cities where saturation has been reached in areas like the central business district (CBD), the unit is relocated to developing areas. I am using the licence but the CBD branch will be merged with a nearby branch and licence will be used to open new branches in growing areas within the city area.

What about plans for recruitment?

The staff strength was 38,000 when the PCA was imposed. Now, it has reduced to 32,000. Recently, we went to the board and took permission to recruit around 1,700 people at different levels. We have recruited a lot of specialists in areas like information technology and risk management.

Keeping in mind the age profile of the bank staff, around 800 employees will retire every year. So, actual net addition may be about 600-700. Plus, there will be attrition also. It is not that all those who are recruited are going to stay. 

The government holding in the bank is quite high. Which is seen as a challenge in the discovery of stock value. How are you going to deal with that issue?

The capital adequacy of the bank is sound. It is true that due to high government holding, there is very little floating stock in the market. The bank is cognisant of this issue and will take up the matter with the government.