P & S Bank Sheds High-Cost Deposits
"We want to bring down market borrowings to nil by end of this month. Interest payout on high-cost deposits and borrowings has cost us dearly and we want to avoid them to the extent possible," S S Kholi, the bank's chairman and managing director, said.
This is part of a strategy to ensure that the bank emerges out of the net loss scenario and makes a small net profit in the current year. The bank made an operating profit of Rs 8 crores and a net loss of Rs 132 crores last year.
The bank has sought a capital infusion of Rs 160 crores from the government in order to raise its capital adequacy ratio from the current low level of 3.31 per cent to the required level of 8 per cent. The government had extended Rs 72 crores by way of recapitalisation to the bank last year.
Interest payout on high-cost deposits and market borrowings was Rs 70 crores in 1995-96 and was the main reason for the huge amount of net loss.
The other reasons were salary arrears of Rs 30 crores given to employees and a provisioning of Rs 20 crores for adjusting against depreciation in government securities as per the latest Reserve Bank of India (RBI) norm on yield-to-maturity.
The bank has pruned its CDs and corporate deposits by Rs 230 crores since April. The current level is Rs 400 crores, a part of which were raised at low rates of 10-11 per cent when interest rates on CDs had dipped in July, a senior bank official pointed out.
Till the recapitalisation takes place, the bank is trying to keep its risk weighted assets at a low level in order to keep a check on the free fall of capital adequacy ratio. Another reason for keeping its loan portfolio at a low level is to keep a check on the growth on non-performing assets.
Instead, the Punjab & Sind Bank is trying to focus on investments in bonds of financial institutions and public sector undertakings and parking funds in certificate of deposits of financial institutions.
"Despite the reduction in certificate of deposits and corporate deposits, we plan to do better than the current year's estimate of 11 per cent growth in deposits. We want to deploy these funds in short-term investments that offer good returns," Kholi said.
Some of the measures adopted by the bank in recent weeks to improve efficiency and profitablity include:
* creation of five model branches offering high-quality, computerised services in each banking zone
* offering cash transaction facilities in select branches till 5 pm, instead of the usual closing hour of 3 pm. Beginning with a branch in Chandigarh, some selected branches will also issue drafts till 7 pm to meet the exigencies of businessmen.
* taking up full computerisation of 20 more branches besides the 12 branches covered last year.