‘Slow and steady path’
P.V. BHARATHI is shepherding Corporation Bank, one of India’s oldest financial institutions, through an amalgamation with two other public sector banks. Before assuming charge as managing director and chief executive officer of the bank, she had served as executive director at Canara Bank. With more than 37 years of experience in the banking industry, she is regarded in industry circles for her expertise in a wide range of banking operations. Bharathi has also steered Corporation Bank through a difficult period, enabling it to emerge stronger and ready to face fresh challenges as well as new opportunities in a new avatar. Excerpts:
What does it mean for Corporation Bank, an entity with a history of more than a century, to head into an amalgamation with two other banks, Union Bank of India and Andhra Bank?
During our 114-year journey we have crossed many milestones, the latest being the Rs.3 lakh crore business milestone. In fact, by March end 2020 we plan to reach Rs.3.26 lakh crore. These targets predate the merger announcement and are our bank’s own target. We were always on a decent growth path, but in 2014-15 we came under the Reserve Bank of India’s AQR [Asset Quality Review, which mandates rating of credit risks associated with banks’ lending portfolio]. As a result our bank’s business slowed down a bit, mainly because of the high volumes of non-performing assets [NPAS] recognised in our books. We thus had to curtail our expansion to some extent. In 2017, the RBI brought the bank under its Prompt Corrective Action [PCA] framework, which curtailed our lending. Between December 2017 and February 2019 the bank worked hard to recover the bad loans on its portfolio. About Rs.14,000 crore have been recovered since 2017.
How did the bank recover from being under the restrictive regime of the PCA?
In order to recover outstanding loans quickly we introduced “Halla Bol”. Our staff would visit the houses of borrowers and stand there with placards, asking them to return the bank’s money. There would be no shouting or anything said by our staff members. This brought many customers to the negotiating table to settle their dues with us. We were under RBI review on a quarterly basis but showed significant improvement in loan recoveries.
These measures also gave confidence to the RBI that the bank would be able to get back on track. This renewed confidence is what made it possible for the capital infusion of Rs.9,000 crore in the bank by the government. The bank took steps to recover NPAS, improve asset quality, and improved RWA [Risk Weighted Asset, which is a measure used to assess capital adequacy of a bank], all of which have placed it on a sustainable path to recovery. We were able to reduce the bank’s RWA substantially, which enabled us to conserve capital. It is because of these measures that the capital infusion of Rs.9,086 crore happened in February 2019. As a result of these developments we were able to exit the RBI’S PCA framework. We thus got a fresh lease of life.
Once we got this capital we decided to bring down the net NPA level to less than 6 per cent, which is the limit set by the RBI for banks to remain outside the PCA framework. Once we were outside the PCA in March 2019, the bank was able to focus on its growth path. We have resolved to proceed on a slow and steady path. In the last three quarters [ending June, September and December 2019] we have grown steadily and consistently, apart from turning profitable. In June we made a profit of Rs.103 crore and in September Rs.233 crore, and now we are awaiting the December results.
The changes in the National Company Law Tribunal process have helped us bring borrowers with NPAS to the negotiating table. In fact, our bank has the highest NPA Provision Coverage Ratio [PCR]; it was 83 per cent in March 2019. We have been very careful about the quality of assets we are contracting as also the classification of the assets.
In order to remain healthy, monitoring the status of advances is crucial. We have strengthened monitoring systems by constant interaction with our branches and zonal offices. We are also periodically reviewing the probability of advances turning bad so that we identify the problem early. This forecasting enabled us to start the follow-up process early at every single level irrespective of the size of the loan. This is how we have controlled slippages. We have curtailed slippages to Rs.1,000-1,200 crore in each quarter.
When were these systems established in the bank?
The strengthening of the recovery mechanism at the bank started in September 2017. It is yielding results
now. We are now able to predict likely slippages with a fair degree of accuracy. The two main parameters are gross NPAS and net NPAS. In terms of capital adequacy we are comfortable at 12.3 per cent. We are also improving in terms of profitability. The primary challenge is still to control the NPA ratios. We have reduced gross NPAS from 17.34 per cent to 15.34 per cent; we want to reduce this further to 14-15 per cent. Similarly, net NPAS have fallen from 11.34 per cent to 5.59 per cent; we aim to reduce this to 5.40 per cent.
Even though the order for amalgamation came on August 30, 2019, we had set our targets and focus much earlier in order to make a sustainable recovery. Moreover, we have shared this with all our employees so that we can work together in achieving our objectives. In fact, we have issued a set of Ten Commandments, which list the issues each employee needs to focus on in order to achieve the target. We have strengthened our risk assessment department and we are now on a risk-focussed drive. We have set risk limits of every category of borrowers. We also have stringent review mechanisms in order to monitor progress in meeting targets.
In terms of deposits, we are in a fairly comfortable position. For advances, because we have a risk monitoring mechanism in place, we now have various types of recovery procedures for handling one-time settlement proposals. We have separate schemes for agricultural borrowers, MSME [Micro, Small & Medium Enterprises] clients and for overall advances. Our effort is focussed on reducing the book liability of the NPA.
How prepared is Corporation Bank for the amalgamation?
Even before the amalgamation process was announced, each of the three banks had been set on the path towards growth. All three have an affinity for the South, especially culture-wise. That ought to make integration smoother. Technology-wise, we have no problem because all three are on the Finacle platform [core banking product developed by Infosys]. In terms of policies in the three banks, since we are all public sector banks, we are all in compliance with RBI policies and regulations. In terms of products also there is not much of a problem in integration operations of the banks. It is in the realm of human resources that we will have challenges when we merge operations. HR functions will play an important role in determining the success.
Thus, only in the areas of technology and HR will we have challenges in ensuring a smoother transition. There are already 30 groups that have been formed, which some of our general managers are heading. These represent the different verticals and the groups are called Functional Committees. Eight of the 30 committees are headed by general managers of Corporation
Bank and these committees meet regularly. Each of these seven-member committees has representatives from each of the three banks.
A striking feature in the banking industry is the significant decrease in the average age of the employees, when compared to historical trends. How does Corporation Bank fare in this regard? Although this is regarded as being good in several ways, this is also believed to result in an imbalance between youth and experience. Your comments.
The average age of a Corporation Bank employee is 35 years. Thus, most of my colleagues have a solid 25 years ahead of them with the bank. Earlier, when people like me joined the bank, we were recruited soon after graduation; it was only later in our career that we gathered more qualifications and skills. Today, typically a person who joins the bank is an engineer who is well-versed with systems. Today, even a commerce graduate is aware of the systems employed in banking. Many of them are also MBAS. Therefore, the level of qualification of those joining the bank today is much higher than earlier. Whereas we had to learn technologies later in our careers, newer recruits are already familiar with these things. Given that banking is increasingly technology-driven, this change is in keeping with the times.
However, though they are tech-savvy they need to understand the specifics of the banking business, its products and its specific characteristics. We have an e-learning facility to help them through this. We also have a succession plan that is based on a mentoring system. We have also deployed proprietary software that enables messaging to employees across the country instantaneously. This enables two-way communication on a real-time basis.
When the amalgamation happens, what portions of the merged entity would reflect Corporation Bank’s ethos and its history?
Basically, banks are known by the customer service they provide. And, we are known for the quality of service we provide. Customers also ask if after merger we would continue as we have. That is perfectly understandable; after all they trust us with their money. I would like to reiterate that even after merger our branches will continue as they have.
The amalgamation process may take between 16 and 18 months to be completed. By the time the amalgamation happens, by end of March 2020, employees would have already gone through their promotion cycles, which normally is the time when transfers take place. This will ensure that there will be no dislocation for employees as a result of amalgamation. In fact, our advertisement tagline is: “It is going to be banking as usual.”
products and services. Savings deposits variants, especially
Corp Elite, Corp Delite and other premium savings bank products including Corp
Payroll, Signature & Super, have been well received in the market. The bank’s increased presence in rural and semiurban areas is a great opportunity for it to improve its exposure to agriculture, small and medium enterprises (SME), and the retail segment in order to register a balanced growth in its retail portfolio, in tandem with the wholesale business. The bank also provides a comprehensive range of innovative and business-friendly products and services for retail & MSME (Micro, Small & Medium Enterprises) entrepreneurs through its branches across the country.
TRAINING INSTITUTES
Corporation Bank Self Employment Training Institutes are operating in Chikkamagaluru and Kodagu districts, catering to the training needs of unemployed rural youth in these districts, where the bank has the lead bank responsibility. Nearly 18,000 unemployed youth have been trained so far, with a cumulative settlement rate of 78 per cent. The institutes were graded “AA” by the Ministry of Rural Development for the year 2018.
As a part of Centenary Year celebrations of the Bank, a modern library was established in 2006 in Mangaluru and dedicated to the public. It has a stock of over 17,000 books on subjects such as literature, law, computer science, banking, marketing, engineering, religion and medicine. The library subscribes to 20 newspapers and 46 journals/magazines. About 620 CD/DVD/VCDS are available for lending. On an average about 300 people visit the library every day.
It has not been a bed of roses for the bank in recent years. Corporation Bank was placed under the Prompt Corrective Action (PCA) framework of the RBI because of the industry-wide challenges posed by the mounting quantum of non-performing assets. The bank has since made a conscious decision to rebalance its portfolio by focussing on retail banking rather than bulk business. Conservation of capital has been an important focus area in recent times, which has resulted in a significant lowering of its risk-weighted assets. Measures taken by the leadership have resulted in the containment of slippages.
LOAN RECOVERY MISSION
The strengthening of the loan recovery mechanism has also yielded benefits. The entire team of the bank was put on a mission mode. The “Halla Bol” campaign has turned out to be a mega success with the wholehearted involvement of the rank and file. The bank also has separate verticals for credit monitoring and recovery. The bank has created a separate Stressed Asset Management Vertical (SAMV) for the resolution of stressed assets and initiated risk mitigation measures to arrest fresh slippages. All these measures have paid off, with the bank emerging out of the RBI’S PCA framework in February 2019.
The bank’s financial performance has shown an all-round improvement in the current financial year, with better recoveries and a stronger bottom line. The September 2019 results show that the bank has recorded a net profit of Rs.130 crore as against a profit of Rs.103 crore in June 2019. The net NPA has been brought down to 5.59 per cent as on September 30, 2019, compared with 11.65 per cent in the comparable period in 2018.
Considering the strong fundamentals of the bank, the government in August 2019 has decided on the amalgamation of Corporation Bank and Andhra Bank with Union Bank of India. The combined entity will be the fifth largest bank in terms of the volume of domestic business and the fourth largest in terms of branch network. The amalgamation is likely to help Corporation Bank to serve customers better. This will also provide impetus for adoption of best practices from the amalgamating entities, improved risk management and financial inclusion, and a wider reach. $