IDBI Bank to ramp up presence in rural, semi-urban areas

Says bank is using the Securitization Act to recover funds

Government-owned IDBI Bank is looking to expand its network in rural and semi-urban areas to increase credit to the agriculture sector.

The bank’s current exposure to the agricultural sector is only five per cent of its total credit, far below the regulatory requirement of 13.5 per cent. The bank has identified inadequate number of branches in rural areas as one of the reasons for low credit to the agriculture sector. Out of its 1,560 branches, only 260 are in the rural and semi-urban areas.

“Since north India has the most progressive agriculture belt, thanks to the enterprising farming community, we have opened a new zonal office covering Jammu & Kashmir, Himachal Pradesh, Punjab, Haryana and the Union Territory of Chandigarh,” M S Raghavan , chairman and managing director of IDBI Bank, told Business Standard. The bank plans to increase its branch network in north India from 112 to 150 branches by March 2015. “We may need to have close to 500 branches in the region to meet our lending and we will add more branches to our fold gradually,” Raghavan  added.
 

WHERE IT STANDS

• The bank’s current exposure to the agricultural sector is only five per cent of its total credit
• The bank has identified inadequate number of branches in rural areas as one of the reasons for low credit to the agriculture sector
• Out of its 1,560 branches, only 260 are in the rural and semi-urban areas
• The bank plans to increase its branch network in north India from 112 to 150 branches by March 2015
• Given its legacy of industrial financing, IDBI Bank has high exposure to the corporate segment

Raghvan also held meetings with the dairy sector and officials of the National Bank for Agriculture and Rural Development in Chandigarh in order to assess the requirement of funds for building agriculture infrastructure such as cold storage, rural go-downs etc. Lending to create agriculture infrastructure will help the bank meet its priority-sector lending target.

The bank has attributed its high non-performing asset (NPA) ratio, 5.6 per cent of gross advances, to cyclical factors. It said the government’s expenditure control has resulted in delay in payments by EPC (engineering, procurement and construction) contractors. “The abnormal build-up of NPAs is not the real default but only a cyclical phase,” he noted.

Given its legacy of industrial financing, IDBI Bank has high exposure to the corporate segment. This has also resulted in delinquencies during times of economic slowdown. “But we are taking stringent actions through the Securitisation Act to recover the funds and it is giving enormous results,” he said.

Explaining the limitations for public-sector banks' merger, he said state-owned banks have their own peculiarities. In contrast, private-sector banks have a few challenges on this front, he added. However, he neither denied nor confirmed the possibility of a merger. Commenting on the moderate inflation and its impact on the interest rate, Raghavan surmised that RBI might go for a 25 basis point cut in February-March, but no immediate change is expected. RBI is expected to announce its fifth bi-monthly policy review next Tuesday.