Corporation Bank Gears Up To Take On Private, Foreign Peers

Corporation Bank, the leading public sector bank in terms of many efficiency parameters, is actively seeking to compete in the same space as the new generation private banks and foreign banks.

Referring to last year as one of intense price competition in core banking areas, K Cherian Varghese, chairman and managing director, said: "All banks are in an adjustment phase, but competition is particularly keen among good banks which have prime customers who can shop around for better terms".

Banks have had to grapple with the new phenomenon of sub-PLR lending, with prime customers managing to borrow at below 9 per cent. "If a bank's business is not price sensitive, then in the short term, profits can rise but there is risk of asset contamination."

 

"We have a lot of blue-chip customers who account for 17 per cent of our advances and 80 per cent of our business comes from metro and urban centres where the competition from private banks is strong," he added.

Last year, average advances went up by 17.3 per cent but interest on advances grew by only 6.7 per cent.

"There is now a need to shift from big ticket borrowers to medium ones and retail business. But here also, we are prudent or cautious. We are not going after all types of retail lending but concentrating on housing finance which last year went up to Rs 675 crore from Rs 270 crore, and will double in the current year."

A key element in the bank's strategy to fight competition is to rapidly expand its ATM network (from 125 in March-end to 250 by end-2002) and interconnect branches for most customer business in the current financial year. In the next financial year, it will have in place a core banking solution which will integrate all back office work.

Realising the importance of e-enablement, Corporation Bank's board has set up an IT committee, a rarity among nationalised banks. In the short run, the IT budget will add to operating costs but will build a strong base for growth in the coming years, Verghese said.

The bank is also setting up a marketing division under a general manager with support trams in zonal offices and branches. This will be done without adding staff as the increasing use of IT will throw up a surplus.

To speed up credit processing, all proposals which require head office approval will be sent straight to the head office and not through the respective zonal office. The bank has also identified 100 branches in semi-urban and rural areas, where the bank's competitors are absent and which offer opportunities for lending to agriculture and trade.

Agriculture, particularly advances to coffee growers, has in fact pulled down the performance of the bank in the last year because of the global glut and depression in coffee prices.

The bank has a unique opportunity in its special relationship with LIC which has allowed it to open branches and ATMs at its offices. Last year this brought "substantial business" by way of deposits and investment transactions. This business is expected to grow in the coming year.