Allahabad Bank MD and CEO Ch S S Mallikarjuna Rao: MSMEs hurt by asset-liabilities mismatch

Edited Excerpts:

What does the two-day consultative discussion encompass?

The government wants to know the involvement of the public sector banks (PSBs) in the development of the economy and the way forward for the banks.

There are a lot of advantages in the bottom-up consultative discussion. The suggestions that would come out of such processes may include recognising factors that affect the economy at macro and micro level.

This is a massive exercise involving all PSBs and is held simultaneously across 1,700 locations in the country. In case of Allahabad Bank, we are organising such discussions in 52 locations pan India.

The first round of discussion was regional (that took place over the weekend), next would be state level (to be discussed this weekend) and then national level. In the state-level meeting, all banks will share their understanding that was gained through zonal level discussions.

And the conclusion that will be drawn from state-level meeting will be discussed with the whole-time directors of the banks at the national convention.

The day one of convention will discuss problems at macro and national level; to see the benchmark and gaps; and plan the next course of action. The day two of the convention will include interaction with finance minister and prime minister.

In the previous interview with FPJ, you spoke about making profits that you have achieved. But what is next for the bank?

By June, we were able to make profit of Rs 128 crore. However, there are still challenges in the RAM (retail, agriculture and MSME) sector. While in the large sector, we have been able to identify the challenges that was hurting our business, but in agriculture, we are still facing difficulty recognising those areas.

We are working very hard but we believe couple of quarters will be tight. We will definitely work hard to make every quarter profitable. At the same time, we are facing tough times which we have to overcome. By fourth quarter, our position will get better.

What is the progress made in NCLT cases?

So far, no big-ticket cases (such as Bhushan Power and Steel, Essar, Sterling Biotech etc) have come to a close. We were expecting a settlement in the last quarter. The bank has high stakes in these cases.

The amendment passed by the government to resolve the issue in 330 days, is going to help us. We have to wait and see what happens now.

How many small cases have been resolved under NCLT?

There are around 156 cases in NCLT (small and big-ticket) which amount to Rs 18,000 crore. The big cases are somewhere between 40 and 50; and remaining are small cases. During the last quarter, there were some new additions and some cases were resolved.

By end of March, there were three cases that were settled, but the amount was small. But bigger cases are still on, and we hope closure in the current year.

RBI has been talking about rate cut not getting percolated to retail customers. What is Allahabad Bank’s stand in that?

g Firstly, influence of repo rate in credit interest rate is limited. Despite having a repo rate cut, if the deposit cost is high, advances cost will continue to be high.

Unless deposit rate is reduced, advances cannot be reduced. But reduction in deposit rate is not possible without understanding the market position, then you will be outlier. Market is driving deposit rate.

After State Bank of India (SBI) had devised a product with repo rate linkage, Reserve Bank of India is expecting other banks to follow suit. There is a discussion about this among majority of banks.

For this, Allahabad Bank will have a board meeting on August 31 and we will implement it from September. This product will allow transmission of rates faster.

If we link any advances with repo rate, then any change in repo rate will be transferred immediately to the customer. In case of MCLR, the reduction can take place even after one year. The spirit will be propagated with the move.

In which segment is Allahabad looking at introducing repo rate linked loans?

It is obviously for housing loans and mudra loans.

The Indian economy is stressed. What measures are being taken in banking sector to address the slowdown?

If you look at economy, we will see there are various segments that are facing stress. In a cumulative impact, the economy is facing stress. Some of the segments are doing well but their influence is very limited.

Non-Banking Finance Companies (NBFCs) had a problem in case of liquidity and that was handled in the month of November. Even now, the sector is facing liquidity problem. The government has plans to infuse Rs 1 lakh crore which will flow into NBFCs — from the banks. That is one of the measures.

In case of NBFCs that have assets in the real estate business, have to liquidate the asset. Though cash-trapped NBFCs are getting a line of credit from the public sector banks as a measure of tying over the liquidity issue and asset-liability mismatch but that cannot be a permanent solution. They have to look for a permanent solution and that is monetising their assets.

There is sufficient cash in the market. However, specifically MSMEs have a problem because of asset-liabilities mismatch. So, work is going on to help this sector as well. The introduction of PSB Loans in 59 Minutes is also to help MSMEs.

The in-principle sanctions are moving fast in this product which has to be backed by sanction and disbursement. But there is a time lag in disbursement and that needs to be reduced.

How long will it take for the economy to recover?

It usually takes two-three months for the impact of any transmission to be felt. It is only after the transmission that the impact can be seen in the economy.

The finance ministry is consulting businesses. We also had a meeting with them and work is in progress. We are optimistic that government will take the necessary measures.

What is the disbursement rate of Loans in 59 Minutes from your bank?

We are disbursing whatever is coming to us. But the number is too less. We want to publicise the product and it is matter of customer preference. Only if customers prefer our bank then only we can disburse and we want more and more customers to prefer our bank.

We need to create more awareness about our bank. Our strong areas are Uttar Pradesh, Jharkhand, Bihar, West Bengal, Madhya Pradesh and Maharashtra. So, we are popularising PSB 59 in these regions.

Which sector in MSMEs is showing more interest?

The demand is across MSME sectors that include manufacturing and service sector. We have more demand from manufacturing sector. But there is a lot to be done in that area.

If the government spending starts, there will be a boost in that segment. At present, the investment is less. If infrastructure investment takes place from the government on committed lines, MSMEs will get impetus.

What are the other challenges in business?

The challenges in the business are intertwined with the economy. Specific to Allahabad Bank, there are different set of challenges as we just came out of the prompt corrective action (PCA) and just booked profits in June.

We need to hold on to regulatory requirement of capital. These are the challenges for Allahabad Bank.

What is the progress made in opening QIP issue? Will funds raised via QIP be enough?

We are looking at raising around Rs 1,000 crore through Qualified Institutional Placement (QIP). We have already selected the BLRMs and we are going forward with our plan. In a month’s time, the issue will be open. This financial year this would be sufficient.

What are the targets set for upcoming quarters in terms of advances and CASA?

Our CASA position by March was 49 per cent. We want to hold on to 50 per cent by 2021 that is the target that we have fixed. Our credit target by March 2020 is to cross Rs 4 lakh crore business.