After booking heavy losses of over Rs 1,000 crore in 1993-94 on account of income recognition and asset clasification norms being enforced, the Bank of India (BoI) turned around and registered a net profit of Rs 50.35 crore in 1994-95. And in 1995-96, BoI reported net profit of Rs 276 crore "" an incredible jump of 452 per cent over the previous year's figure. This increase, in fact, was the highest among nationalised banks. It is the third nationalised bank to have got the government nod for going public after Dena Bank and Bank of Baroda. Sumit Kakkar speaks to P S Shenoy, general manager (subsidiaries), who is currently in charge of the public issue also, about the public issue and the future strategies of the bank.
Q: What were the reasons that the bank booked massive losses in 1993-94? This year, BoI had the highest net profit among the nationalised banks. What are your projections for the year ending 1996-97?
A: For the last 90 years, BoI has always had operating profits. But after the proivisioning and asset classification norms were put in force, the bank suffered a net loss. Making provisions does not mean that we have actually lost that amount, so later on when it comes back, it will be written back into the profits.
This year, we expect the operating profit to be Rs 600 crore and net profit to be around Rs 450 crore. On an incremental basis, we do not expect any provisions for bad debts this year. We have expanded our non-fund based income and better management of investment and income has resulted in the turnaround.
Our NPAs for 1995-96 were around 7 per cent and this year, we intend to bring it 5 per cent. In international operations, NPAs are a mere 2 per cent. Advances accounted for 52.1 per cent of total income compared to 47.1 per cent in 1994-95. Our projection of deposits and advances in 1996-97 is Rs 31,000 crore and Rs 18,000 crore.
Q: Who are your major corporate borrowers?
A: Among the top 250 corporates, we have accounts of 50 of them. Among the top clients with AAA rating (internal rating), we have accounts of IOC, SAIL, Hudco, Telco, Essar Power, HDFC, Godrej Soaps, Tata Cummins, National Fertilizers, Altos India, FCI, Finolex Industries, Orchid Chemicals & Pharma and Indorama.
Q:Do you think there is enough appetite for another bank issue after the Dena Bank and BoB issue?
A: We believe that there will be enough appetite for the BoI issue despite the gloomy conditions prevailing. We have already reviewed the price of the issue keeping in mind the conditions prevailing. It has been reduced from Rs 55 to Rs 45. The government's approval is expected any day now. This price is too less for a nationalised bank which has a branch network of 2,400 branches and a strong brand name.
In the depressed priomary market, the IPOs of Dena and BoB have succeeded. This indicates that there is interest of investors in bank stocks. Moreover, with the post issue P/E of our bank standing at around 7.5, against 12 for the banking sector, there is lot of scope for capital appreciation. The Rs 675 crore issue with the slated price of Rs 45 will be hitting the market in February this year.
Q: What is the main objective of the issue?
A: At the end of the first half, we already have a capital adequacy ratio of 9 per cent. We are basically coming out with the issue to further augment the capital adequacy requirements of the bank. Another reason is to increase the bank's exposure limit for industrial advances as per prudential norms.
Q: What response do you expect from the retail investors?
A: For the retail investors, we have made reservation of Rs 315 crore and we expect it to be over subscribed by around 2 times. To make it broad-based, we are insisting on minimum application of 200 shares.
Q: Have you made any reservations for FIs and FIIs?
A: We are making reservations for banks, Fis and mutual funds, but no reservations for FIIs. An amount of Rs 67.5 crore has been reserved for employees, Rs 45 crore for MFs, Rs 135 crore for FIs and banks. There is a reservation of Rs 112.5 crore for NRIs and OCBs also. We do not propose any reservation for FIIs. But they can still apply in the primary market on non preferential basis.
Q: Are you adding any more branches in the current year?
A: In terms of corporate plan for 1996-97, the bank proposes to open 25 branches. During the current year, the branch has so far opened 3 branches and merged one loss-making branch. The present branch network includes 2,437 branches and 81 extension counters. The new branches would be coming up mostly in urdan and semi-urban areas. These will be corporate and commercial and personal banking branches.
Q: Would there be any focus on rural branches?
A: However, opening of rural branches could be considered primarily in the lead districts assigned to the bank provided there is sufficient business potential. The main focus of branch expansion is on opening more specialised branches. Coopers & Lybrand, the consultants, have recommended corporate banking, commercial and personal banking and priority sector banking as the key segments for the development of bank's business. And these branchers would be opened in the urban and metropolitan areas.
Q: What has been the market response to the BoI card?
A: BoI launched its India card in affiliation with Mastercard in 1988 and we are shortly going to sign up with Visa International. Today, we have card base of over 1.8 lakh with around 10 per cent market share. Our card holders enjoy the facility of cash withdrawal at any of the branches in the country. We also have a alliance with Taj group of hotels and we issue our co-branded card called the Taj premium card for select group of individuals, including the clients of Taj group.
Q: What are the restructuring recommendations of your consultants?
A: The major recommendations of the bank have been in respect of business strategy, organisation structrure, re-engineering of key personnel and information technology. Coopers & Lybrand have identified corporate banking, small and medium business banking, rural and development banking as the key lines of buiness. The organisation would be structured on four identified lines of business with direct reporting system as per business requirements.
Human resource policies will be performance-driven. For information technology, we will have a two-pronged strategy. At the branch level "" to support strategic initiatives of any time, any where banking for personal and corporate customers through effective deployment of IT. At the head office level, we will introduce a hybrid system in whch strategies will be directly linked to the centralised system.
Q: Do you have any plans to cut down employee strength?
A: We do not have any plans as of now, and as it is, we had no recruitment for the last few years. We consider that we are slightly over-staffed at the moment. But we do have plans of redeplyment of staff in the metro areas, since most of the new branches would be coming up in the metro areas.
Q: Do you think, with the pending CRR cut of 1 per cent in January, the credit offtake will improve?
A:The CRR cut by itself might not push credit offtake. As far our bank is concerned, we have already sanctioned Rs 900 crore. But basically, I feel it is because of recession the off-take has not picked up. Credit off-take has picked up after the assurances given by the finance minister and the tradition is that in the second half the credit offtake picks up.
