Has Union Bank’s ICICI-Like Strategies Worked?

Union Bank of India’s campaign ‘Your Dreams Are Not Your Alone’ was perhaps the most catchy bank promotion in recent times. However, it was not the only strategy Union Bank – led by veteran banker MV Nair - copied from India’s private sector banks like ICICI Bank, HDFC Bank, & Axis Bank. But has it really worked for this Mumbai headquartered public sector bank (PSB)?

ICICI Bank, Indian banking's leader in promotional campaigns, has cut their advertisement expenditure by one-third ever since the downturn began. But it was also a time when a few public sector banks, notably State Bank of India (SBI) and Union Bank of India (UBI) hiked their advertisement spending. Union Bank’s was the sharpest increase in ad spend, going up by almost thrice over the previous year.

Union Bank of India also seems to be following some of the strategies that ICICI Bank pursued during the last boom and later discarded – like growing their Point of Sale (POS) business astronomically and providing retail / vehicle loans to non-customers.

On the recruitment front, Union Bank recruited 2200 employees during last year, and this year plans to take in around 2000 – much like how private banks like ICICI Bank, HDFC Bank, and Axis Bank were doing. But with no performance-linked pay structure in place like these private banks, and the retirement-to-recruitment ratio being 3:1, the need for such a move is difficult to rationalize.

The complex effects of Union Bank of India’s promotional campaign – that amounted to Rs. 142 crore in 2008-09 - are now unraveling with the latest quarterly results. On first look, the headline profit growth of 94% shows that the campaign has clicked. Even some constituent figures like the substantial growth in fixed deposits may be an outcome of this aggressive campaign.

However, on a closer look, many other constituent figures are troubling. The fact that Union Bank could post only a 1.52% growth in net interest income shows that something went wrong in their core business of deposits and advances. On the other hand, the most promising component in the results – doubling of non-interest income including treasury – had nothing to gain from the promotional campaigns.

Even the rise in fixed deposits might have complex aftereffects. Union Bank of India’s cost of deposits has increased to 6.47% due to this major focus on fixed deposits. At the same time, the bank’s Net Interest Margin (NIM) is down to 2.29% from 2.92% last year, with pressure coming from these high-cost fixed deposits that will take time to mature. Now, the bank faces an uphill task in raising NIM to a healthy 3%.

At the same time, despite this heavy promotional campaign, the bank could not perform well on the low-cost current account / savings account (CASA) deposits, and now Union Bank has to struggle to bring CASA to 35%, something which might take until 2012.

The bank which has always performed well on the NPA front, however, saw net non performing assets (NPA) going up by 0.57% during last quarter. But this might have to do with Reserve Bank of India (RBI) rejecting a proposal from Union Bank of India to deduct floating provisions from gross NPA. The reason for the RBI rejection is not clear, as similar proposals from peers like Punjab National Bank (PNB), Bank of Baroda (BoB), and Central Bank of India were allowed.

Post-budget, the outlook for treasury gains is bleak for all banks. This is said to be especially so in the case of Union Bank where loan growth is relatively low and treasury portfolio is high. With treasury income being their mainstay during the last quarter, the bank needs to think of other sources for showing profit.

With parking surplus funds in liquid and liquid-plus mutual funds (MF) not going to be viable after around August 2009, Union Bank will be forced to increase lending, but in the face of lackluster demand. MFs was one area where Union Bank of India could register good profits.

Even while bigger players like SBI decided to keep off, Union Bank participated in the consortium funding Air India / NACIL. Now with Air India in deep trouble, the decision seems badly made.

After a good performance in the bourses for some time, Union Bank of India has now started appearing with ‘SELL’ recommendations due to poor short-term prospects.

Like many other public sector banks (PSBs), Union Bank too might have surprises from their restructured loan book in the coming quarters.

Maybe Union Bank of India needs to learn more lessons from ICICI Bank which has discarded brand promotions and is now resorting to Customer Education type of promotions. Also, there seems to be no point in Union Bank adopting aggressive business policies discarded by private sector banks.

Can Vijaya Bank Build Upon the Turnaround?

Vijaya Bank has recently proven that it could sustain the turnaround that started in 2008-09. Further success down the year, however, will depend upon how Vijaya Bank addresses major challenges like managing non performing assets (NPA), bettering NRI remittances, coping with lower treasury gains, and rapid expansion of alternate delivery channels (ADC). Seasonal Magazine finds out Vijaya Bank’s strategies from interactions with Chairman & Managing Director Albert Tauro and Executive Director SC Kalia.

The turnaround that started from the second quarter of last fiscal now seems complete at Bangalore headquartered Vijaya Bank.

Waging formidable battles on both the yield-on-advances front and the cost-of-deposits front – that too in difficult years like FY’09 and FY’10 – Vijaya Bank has come up trumps on the crucial figure of Net Interest Income (NII) in Q1.

Though Vijaya Bank’s performance on the non performing assets (NPA) front leaves room for improvement, the bank finds solace in the fact that it is not a mass issue but an issue with a few large accounts like the sick public sector unit (PSU) Spices Trading Corporation Ltd (STCL).

For managing NPAs, both recovery efforts and monitoring of restructured accounts to prevent fresh slippages have been undertaken.

The bank is betting big on their substantial presence in NRI hotspots like Mangalore, Hyderabad, Kochi, & Chandigarh to achieve a four-fold rise in NRI deposits to Rs. 5000 crore.

Vijaya Bank’s Chairman Albert Tauro and Executive Director SC Kalia realizes that treasury gains won’t be good next time, but believes that their better credit deposit ratio would help reduce the impact.

The bank is also pinning much hope on expanding their alternative delivery channels (ADCs) to achieve this fiscal’s growth target of Rs. 1.1 lakh crore. Vijaya Bank has already implemented 100% Core Banking Solution (CBS).

To manage their network expansion of around 100 new branches, and scheduled retirements, Vijaya Bank is recruiting 1000 new staff this year. This year’s branch expansion will focus on North, West, & Central India, as against its conventional footprint of South India.

Seasonal Magazine interviews Chairman Albert Tauro and Executive Director SC Kalia:

With the June 30 results out, Vijaya Bank has made a dramatic turnaround to profitability on a year on year basis – from a 76.64 crore loss to a 143.38 crore profit. Are the quarter-on-quarter results equally promising?

The results are certainly promising and make us feel upbeat about the coming quarters. Let me also make it clear that the turnaround started from the second quarter of last fiscal and we moved consistently and progressively thereafter till the last quarter. On stand alone basis, growth in Vijaya Bank’s core earnings every quarter has been one of the highest among public sector banks (PSBs). Our Net Interest Income (NII) for Q4 of last fiscal clocked a 62% growth, followed by a 54% growth in the June quarter this year. Concomitantly, our earning efficiency also improved progressively from 2.07% in the second quarter of last year to 2.38% for the June quarter. I am sure, with likely pick up in quality and stable business, the current and subsequent quarters show a lot of promise.

Unlike many bigger PSBs, Vijaya Bank has managed a 53.75% growth in Net Interest Income (NII). What were its key drivers? Is it sustainable in the coming quarters?

The key drivers of our NII growth is better yield from our advances portfolio and to some extent, interest cost containment. Vijaya Bank’s yield on advances, at 10.72%, is quite comparable to the best in business while on the cost front, we have managed to bring down cost of deposits to 6.82%. Managing cost of deposit was quite a challenge, I must say, especially in view of the volumes contracted during the second half of 2007-08, a common feature of the banking industry then. For us, it is possible to sustain the NII growth in the coming quarters. Our focus on current account / savings account (CASA) deposits, broad based advances, and quality loan assets is likely see us maintain the growth in core earnings.

You have embarked Vijaya Bank upon a campaign to increase your NRI deposits four-fold within the next couple of years. Apart from starting overseas branches, how do you plan to achieve the target of Rs.5000 Crore?

Campaign "Mission NRI – 5000" aims to increase our non-resident deposit base to Rs.5000 Crore by the end of this fiscal. Vijaya Bank has got good presence in high potential centres like Kochi, Mangalore, Chandigarh and Hyderabad and we are confident of realizing this goal. As brought out by a recent report, India receives the highest inward remittance in the world and with the global market sentiments slated for improvement from the second half of the current financial, we should further this goal with even greater vigour. We don’t have any overseas branch as yet, which we make good with the aid of tie-ups with our correspondent banks. We are also in the process of tying up with leading Exchange Houses in the Middle East to step up our non-resident deposit growth.

Vijaya Bank continues to suffer on the non performing assets (NPA) front, with a increase from 1.71% to 2.94%. With NPAs coming in all the crore lending sectors like commercial real estate, personal loans etc, how do you plan to combat it in the coming quarters?

NPAs are not an exception to Vijaya Bank alone, more particularly if you consider the last few quarters marked by recessionary pressures. About the June quarter as well, almost all the banks have seen rise in the NPA level that was on expected lines. Let me also add that in our case, the addition has been on account of very few large accounts and we are making all efforts to turn those around. Otherwise, our NPA level in sectors like agriculture, education loans etc are quite reasonable and manageable. We have an action plan in place to improve our asset quality. In the first place, we are targeting our restructured loan books and keeping a close vigil so as to prevent fresh slippages. Our loan appraisal and monitoring systems have also been strengthened further to contain the accretion to the bare minimum. Finally, our recovery efforts are being reinvigorated in the form of more V-Adalats, Baaki Vasuli Camps and recourse to various legal provisions.

Vijaya Bank’s STCL account is particularly troubling. How do you plan to solve the issue?

I would not like to comment on any individual account for obvious reasons.

Do you foresee treasury gains slowing for Vijaya Bank in the coming quarters, due to India's mounting fiscal deficit and your low credit deposit ratio?

First of all credit deposit ratio exceeding 67% probably does not merit to be termed as low as against the industry average of about 70%. What is more heartening is the fact that despite relatively low growth in advances, Vijaya Bank could notch up 54% growth in Net Interest Income and 69 bps rise in our Net Interest Margin (NIM) quarter on quarter. That way, our core earnings significantly augmented our treasury income and as such, we are confident of sustaining our overall earnings. Treasury gains in the coming quarters may not be as buoyant as they were in the last quarter. This is applicable to the entire banking industry, given the current trend, likely inflationary pressures and recovery in credit demand and the Government's borrowing plan. Benchmark yields are likely to undergo some hardening, especially from the latter part of the second half. We must also appreciate that the Reserve Bank of India (RBI) may withdraw its accommodative stance once the revival takes effect. In such a scenario, treasury gains may feature slackness in the coming quarters.

From the current business levels of Rs.92000 Crore you plan to move Vijaya Bank up to Rs.1,10,000 Crore by fiscal end. What role will alternate delivery channels like IT play in this growth?

IT Enabled Alternative Delivery Channels (ADCs) will be one of the key drivers in our business growth. Vijaya Bank is already 100% CBS and we have the wherewithal to draw new tech savvy clientele and augment our top line. We offer today any-branch banking as well as remote banking options which are good value propositions for customers who prefer to conserve time and energy by not going for physical branch banking. We have internet banking modules for both corporate and retail segments, offering SMS enabled facilities, bill payment, tax remittance and so on. We are very soon launching Mobile Banking and Phone Banking as also an e-enabled Trading Portal aimed at our niche segments. We have plans to increase our ATM network to 500 by this fiscal and at the moment, our ATM hits are quite encouraging though there is still a lot of upside to it. Besides, ADCs are going to be our competitive advantage as far as our NRI customers and High Net-worth Individuals (HNI) are concerned. Lastly, Vijaya Bank is all set to launch an Online Loan Processing System that will help us improve our advances volume further.

Can PNB Take on ICICI Bank, SBI?

Punjab National Bank, India’s second-largest public sector lender, is trying to overcome remaining challenges like a significant restructured loan book and still-to-be-perfected operational efficiencies, to take State Bank of India (SBI) and ICICI Bank head on. PNB already has the largest ATM network and the second-largest branch network among all public sector banks (PSBs).

India’s ongoing tussle in the banking sector – the fatherly advice of RBI to lower rates, and the free-thinking defiance of public sector banks – doesn’t affect one player much, because, at 11%, Punjab National Bank (PNB) already has the lowest prime lending rate (PLR) among all banks in the country.

It goes without saying that it is a feature that makes PNB a favoured bank among India’s businesses, farmers, and consumers.

Punjab National Bank also excels on Capital Adequacy Ratio (CAR) – perhaps the only parameter where many Indian banks fall short, much like their global counterparts. While many Indian Banks are struggling to keep their heads above the floor-levels of 9-12%, PNB’s CAR is at a very comfortable 14%, a distinction that it shares with only one other PSB. This also makes PNB in no need for recapitalization by the government, something that is plaguing many other peers.

New Delhi headquartered PNB, India’s second-largest public sector lender, has over the years acquired some unique strengths vis-à-vis its peers, which can make this public sector bank take on bigger players from both the public and private sector, provided it can manage some key challenges.

The bank produced a Dalal Street beating Q1 financial performance which was noted not only for its headline profit growth of 62% aided by a sharp rise in treasury income, but for its several constituent and other key figures. Loans were up by 38%, total income was up by 34%, operating profit was up by 59.7%, but the biggest surprise came by way of interest income which was up by 26%.

The performance on the net interest income (NII) front is especially good, taking into account their low PLR and how other comparable banks have performed. It also enabled PNB to manage margin pressures better.

The bank has a good source of low-cost funds in its CASA deposits that amount to nearly 40% of its total portfolio.

Punjab National Bank which lost its last Chairman KC Chakraborty recently to Reserve Bank of India (RBI), since he was the senior-most banker in India, is now led by its Executive Directors MV Tanksale and Nagesh Pydah, both veteran bankers from India’s public sector banking.

According to Tanksale, the bank is eyeing a profit of Rs. 3700 crore for the current fiscal, based on an anticipated loan growth of 22% and maintenance of Net Interest Margin (NIM) at 3.5%.

PNB is a good performer on the bourses, with most analysts assigning ‘BUY’ or ‘KEEP’ recommendations, and the scrip commanding a significant premium over spot-price in Foreign Institutional Investor (FII) transfers.

Punjab National Bank had also put in a good performance during 2008-09, which saw net profit going up by nearly 69% over the previous year. And it was a sustained, all-quarter performance, with even the choppy Q4 producing a 59% jump in net profit. Buoyed by the development, PNB was also quick to declare a generous 200% dividend.

2009-10 will be a momentous one for PNB, as it battles some of its core challenges and handles some divestments.

PNB has a huge portfolio of restructured loans, which is the second-largest (as a percentage of its loan-book) in the public sector category. The bank needs to keep a close watch on these accounts lest they fall into the non-performing category next year.

Punjab National Bank also need to improve in its overall business efficiency, as, despite having India’s second largest branch network, it is only third-largest in total business - behind State Bank of India (SBI) and ICICI Bank - when considering both public and private sector banks. A part of this seeming inefficiency is directly due to meeting their social commitments as a public sector bank, something private sector players are not burdened with.

For example PNB’s ratio of priority sector credit to net bank credit is 41.53% as against the national goal of 40%, and its ratio of agricultural credit is 19.72% as against the goal of 18%.

Punjab National Bank is divesting a 26% stake in its wholly owned subsidiary PNB Housing Finance to international major Dawnay Day for an amount estimated to be between Rs. 70 – 80 crore. The sale’s due diligence is going on and PNB expects to wind up the process within two months.

The bank continues to garner international recognition and partnerships, with the latest being Ex-Im Bank of USA recognizing Punjab National Bank for partnership in its $2.45 billion India Infrastructure Facility, a mega loan facility for India’s infrastructure projects.

On the technology front, PNB has not only completed implementation of Core Banking Solutions (CBS) throughout its vast network, but has also completed CBS in all its affiliated Regional Rural Banks (RRBs) – a sector that is normally shy of technology.

With 100% CBS, the largest ATM network among all PSBs, and Internet Banking, Punjab National Bank has implemented truly ‘Anytime Anywhere’ banking. In fact, it goes even beyond to facets of e-commerce like booking of tickets, payment of bills etc.

PNB is an outperformer in socially inclusive banking, and has kick-started several initiatives in sectors like microfinance, self-employment loans, kisan credit cards, rural smart cards, enabling technologies for the handicapped, support for the economically challenged etc.

Punjab National Bank has operations in UK, Norway, Dubai, Singapore, Hong Kong, Shanghai, Afghanistan, Kazakhstan, & Nepal, and is now planning to enter markets like Canada, Australia, Indonesia, Bhutan, & Fiji, as well as strengthen its presence in UK, China, Dubai, & Singapore. In UK alone, PNB plans to pump in $50 million more to multiply its thriving business there.

How Yes Bank Fares Among India’s Private Sector Banks

At just 123 branches, 2000 odd employees, and sub-100 crore quarterly profit levels, Yes Bank is one of India’s smallest banks in all categories taken together – traditional private banks, new generation private banks, and public sector banks (PSBs).

But Yes Bank has made good progress in certain niche areas like corporate lending to the country’s medium to large enterprises, since its start in 2004.

Driven by a massive advertising campaign, Yes Bank projects a profile that is much ahead of many of India’s private sector banks, but size-wise it is smaller than most small private banks of India like Federal Bank, South Indian Bank, ING Vysya Bank, Dhanalakshmi Bank, IndusInd Bank, and even Catholic Syrian Bank.

However, Yes Bank always has the consolation that it is the only Greenfield banking project in India during the past several years.

Has Yes Bank got what it takes to be a key player in India’s private sector banking? Comparing to the first five-year growth trajectories of private-sector successes like ICICI Bank, HDFC Bank, Axis Bank, or Kotak Mahindra Bank, the growth shown by Yes Bank doesn’t come across as promising.

For example, though the profit growth posted for the quarter ending June 30 is not bad at 84% (QoQ), its component figures are troubling. It was mainly driven by a 103% rise in non-interest income, mainly from Yes Bank’s treasury operations. Also, the growth figures are not that impressive on a sequential quarter basis, and some key numbers like deposits have actually gone down over the just preceding quarter. The rise in treasury income is highly unlikely again during this fiscal.

Yes Bank’s newfound strategy titled ‘knowledge-driven banking’ tries to focus on India’s sunrise sectors like food, agribusiness, infrastructure, life-sciences, technology, sustainability, education etc – many of them not enjoying wholehearted support from traditional banks due to the higher risks involved.

But Yes Bank need to tread carefully in these domains as it already has a serious non-performing assets (NPA) problem. During the first quarter of this fiscal, Yes Bank’s gross non-performing assets (NPAs) have made a dangerous jump – nearly three times – and their non-tax provisions have also shot up by over five times, signaling major problems in loan defaults and restructuring.

Promoted by former Rabobank India head Rana Kapoor, one of Yes Bank’s largest shareholders is the Netherlands based Rabobank. A Dutch cooperative bank consortium owned by its customers, Rabobank primarily caters to agriculture and food business. Though known for good management, Rabobank’s Irish unit has been in deep trouble for some time due to almost one-third of its assets turning non-performing, and was in need of a government bailout.

Until now, Yes Bank followed an unconventional strategy of ignoring the business of current account / savings account (CASA) deposits. And until now, Yes Bank had shied away from retail banking, citing high risks. But now, when established retail players like ICICI, HDFC, & Axis are scaling down their retail operations due to proven risks, Yes Bank is pinning much hope on retail lending.

But with one of the tiniest CASA ratios in India – at around 9% - Yes Bank’s plans to source funds for the highly competitive retail lending segment might prove to be difficult. The bank has little access to low-cost CASA deposits, while it’s exposure to high-cost deposits is high.

Yes Bank is known to take risks, a recent example being the participation in the controversial plan to revive Subhiksha. The soundness of this strategy is doubtable as peers like Kotak Mahindra Bank who had earlier funded the troubled retailer has opted out of the consortium and instead filed a winding-up petition in courts against Subhiksha.

Yes Bank was also recently mentioned in Lok Sabha for violation of one or more of five RBI guidelines, together with 12 banks. The exact violation in Yes Bank’s case – whether it was irregularities in Know-Your-Customer (KYC), Initial Public Offer (IPO), Foreign Exchange Management Act (FEMA), Cash Reserve Ratio (CRR), or Statutory Liquidity Ratio (SLR) – is not known. The bank declined to comment on a query on this issue.

What Google, Facebook, Twitter, Yahoo, & Microsoft Does Right…and Wrong

From cloning to bear-hugs to street-fights, every trick in the trade is being employed in the new fight for mindshare between the internet giants and the wannabe giants. But it is also really amazing how little they learn from each other.

Who is fighting whom, and who is cloning whom in this newly intensified fight between the net giants? Facebook is cloning key Twitter features like micro-blogging and publishing, as well as bringing Google-like search capabilities into their until-now private user pages. Twitter is aping Google with an integrated search of tweets on their homepage, while Google is cloning Twitter’s real-time features with their now easily accessible ‘Recent Results’ as well as with Followers in Blogger. Yahoo and Microsoft have forever been following Google’s moves in the internet space, and Google on their part was wise enough to quickly incorporate some of Bing’s only advantages like news results and newer results into their search.

But what they miss out in reading others strengths is also amazing. Here is a list:

WHAT FACEBOOK DOES RIGHT

1) Asking Your Email Password

It was not Facebook that invented this audacity, but it was they who made maximum gains from the impudence of asking for your email password. They won’t spam or scam with your email account, but be prepared for Facebook’s neat bag of tricks with your address book. Thanks to this feature, even if you haven’t logged on to Facebook yet, the day you do, be prepared to receive many real-world friend-requests waiting – whether you like them or not!

2) Sophisticated Interface

If some web service has defined the Web 2.0 interface, it is Facebook. It not only wins in sophistication, but in sheer beauty. Facebook’s appeal before the young has a lot to do with its subtle cleverness in interface design that requires young brains to figure out. It is something still missing in competitors.

3) Spam Proofing

If you love spamming, you will hate Facebook. And if you hate spam, you will love Facebook. The efforts and controls that have gone into making Facebook spam-unfriendly are commendable. Most competitors are still to learn of its importance.

WHAT FACEBOOK DOES WRONG

1) A Ticking Privacy Bomb

Facebook might prove to be a major privacy problem in the not too distant future. With access to millions of address books, and clever ways of finding friends and friends’ friends – whether the user needs it or not – Facebook’s current levels of ensuring privacy might not be enough.

2) Too Much Sophistication

Facebook is a bit too sophisticated for older users, who entered internet in the email-age or even before. Not too evident navigation, and almost-hidden key features are not attractive to even people in their 30s.

3) Too Much Friend Focus

Facebook’s focus on friends, friends, friends, and nothing else, might prove to be a dampener in the long-term. People also get on to internet for escaping real-world friends! Facebook is yet to awaken to this fact.

4) Lagging in Search

Facebook with search used to be an oxymoron until recently. Now there is a better search feature in beta, but it is no match to Google Search, and tons of content is lying waste in Facebook, undiscovered.

5) Lagging in Tweets

Similar to its attitude towards search, was Facebook’s attitude towards tweets. But they can’t be blamed for this. Much like most internet giants they too underestimated the power of a 140-character tweet. They are trying to remedy it now, but it is too little, too late.

WHAT TWITTER DOES RIGHT

1) Believing Limited is Valuable

We all thought that something needs to be unlimited for it to be valuable. The web was about unlimited-ness – unlimited space, unlimited emails, unlimited search, and what not. But the guys at Twitter realized that for something to be valuable, it has to be limited first. Enter the 140-character tweets. It was a paradigm shift like no other in recent web history. The 140-character limit forced the twitterers to at least think before they type, and edit before they send!

2) Focus on Real Time

Twitter also deserves credit for inventing the real-time web. While Google, Yahoo, and other search engines focused on delivering more credible but historical results, tweets represented the current buzz around everything – at least everything worth tweeting about. Agreed, tweets are not exactly reliable as search results, but what the heck if what you want is just buzz?

3) Followers

Another of Twitter’s almost original ideas, the concept of followers is the most blatant self-promotion tool that exists in the web today. With its clever mix of chosen celebrities with huge followers, Twitter gives off the impression that you too can be a guru, thought-leader, or celebrity whom others follow. Getting more followers is the craze in social networking today, much like the once popular link-exchange and click-exchange in search and web advertising. It doesn’t matter that many of your followers are automated porn-peddling robots. The concept of followers provides Twitter with something most other competitors don’t have – a reason to use it regularly.

4) Developer Support

It looks like this is a lesson Twitter directly picked up from Microsoft. Much like the simple DOS which kick-started Microsoft’s huge success with developers, Twitter was something too simple to have a developer community around it. But just like DOS, Twitter too came with a neat and well-defined Application Programming Interface (API) that enabled a huge community of developers writing programs and hosted services for all kinds of devices to access and extend the core Twitter service. The advantage? Tomorrow, somebody might invent another clever way to extend Twitter.

WHAT TWITTER DOES WRONG

1) Spam Hell

Competition won’t kill Twitter, but spam would. If spam on Twitter continues to grow unabated as of now, it will soon be Spitter, not Twitter. Almost every other tweet you meet is to sell some junk. And it won’t be long before a twitter snapshot looks like your spam mail folder.

2) Got nothing to say?

This is a problem peculiar to Twitter. For many people, there is nothing to say to anyone. They don’t need Twitter. Even worse, they will never understand Twitter. The service is unattractive to such an audience – and that audience is the biggest - and Twitter needs to urgently invent something enjoyable in Twitter - as passive as checking your inbox or viewing television.

3) Too much focus on Followers

In Twitter, life is not worth living if you don’t have an ever-increasing follower list. It is a good initial bait, but it can be tiring too. Soon, twitterers are going to wear themselves out in trying to be a bigger Guru. This too much focus on followers is bad for Twitter, as even without many people following you, what you say has a reasonable audience on Twitter.

4) Tweets are not everything

Tweeting was a good invention, as it married micro-blogging with instant publishing before a sizeable audience. But micro-blogging is not the end, but just another tool that aids more established communication channels. Tweeting was a paradigm shift, but to believe that it is going to stay unchallenged forever would be foolish on the part of Twitter.

WHAT YAHOO DOES RIGHT

1) Bells & Whistles

Trust Yahoo to deliver the best interfaces. Filling up any Yahoo form is not only a breeze, and not only pleasing to the eyes, but surprising for its user-friendly features like intelligent suggestions and pleasant instructions. And these bells and whistles are available across their wide range of products.

2) Identifying & Nurturing Great Services

As things stand today, Yahoo’s only business strength seems to be this – they have been very successful in identifying and nurturing great services. Just two examples are enough – Flickr and Yahoo Answers. Both were pioneers in their category while Yahoo identified and bought them, but it is to Yahoo’s credit that they are still undisputed leaders in their segments.

3) The Best Spam Filter

Yahoo Mail’s spam filter continues to be the best spam filter around. While some competitors still bring some spam mail to your inbox, some others filter it to your spam mail folder, it is Yahoo Mail that blocks most spam mails from even entering your account.

4) Content

Yahoo continues to be the leading news aggregator, and their bet with content is not at all misplaced. At Yahoo, you will never be short of content – almost all of the world’s best content is syndicated there. Content will be one of Yahoo’s last bastions to fall.

WHAT YAHOO DOES WRONG

1) Search is Getting Worse

Something is going wrong with Yahoo Search, or something is going great with Google Search. Once the de facto leader, then a viable alternative, and now just an also-ran, Yahoo needs to invent something big in search before they will be forgotten as a search company.

2) Portfolio Now Seems Smaller

Once the web’s largest portfolio of services, Yahoo is shrinking or competition is expanding. Yahoo can’t be pardoned for the too many missed buses. Blogger, YouTube, MySpace, Facebook, or even Google could have been theirs, once.

3) Poor Tools for Small Businesses & Publishers

Yahoo is fast ceasing to be of any use to the websites of small businesses and small publishers. Yahoo just doesn’t seem to have the tools or interest to support the new entrants into web. On the other hand, Google is quickly building up an unimaginably complex network of services for small businesses.

WHAT MICROSOFT DOES RIGHT

1) Focus on Sales

Microsoft first figures out how to make money. Then they do whatever it takes to make that money. Their model is a far cry from the first-free-then-struggle model of internet entrepreneurship. The core focus is sale, and on that focus they have built up the formidable Windows and Office franchises that are not going to die anytime soon.

2) Focus on Developers

Microsoft not only make money themselves, but through their support for developers and computer-makers have enabled thousands of software and hardware companies to make money. Once an also-ran in even the Windows Application Development space, today their portfolio of .NET has become the most preferred development platform not only in Windows, but several cross-platform niches.

3) A Different Take at Free

So, what if Linux is free? Windows was always free in some of the biggest emerging markets like China & India. Through a clever strategy of ignoring piracy for long, Microsoft ensured that Windows is the platform for the PC, worldwide. Now, with an equally clever strategy of bundling with computers, and a strict anti-piracy stance, Microsoft is making up for all that lost sales.

4) Never Stops Trying

Nobody believes that Microsoft stands a fighting chance against Google in search. Still, Microsoft carries on the fight. Bing might be just another round of effort, but remember, it is their best effort yet. And it never stops trying – after Bing’s lackluster performance comes a further effort to see whether pairing with Yahoo would help.

WHAT MICROSOFT DOES WRONG

1) Everything can’t be bought

There was a time when Microsoft thought that anything fancy on net could be bought with hard cash. But Hotmail remains the only major consumer product successfully bought by the software giant. It missed out on major buys like Blogger and YouTube, and now finds itself faced with smart developers like Facebook and Twitter who won’t sell that easily, especially to Microsoft. Similarly, there was a time when Microsoft thought that a cloned piece of software could be given away for free to kill competition. But the anti-trust case has ensured that Internet Explorer is the last such victor, and Netscape is the last such vanquished.

2) Can be outwitted

The biggest blow to Microsoft in the web space is the fact that a much smaller and less resourceful company like Google could outsmart it. And that shows a great vulnerability. If Google can do it from a startup status, many other startups or reinvented companies have a fighting chance against Microsoft.

3) Where is the innovation?

Though Microsoft is trying hard in bettering search and other such problem areas, the company continues to suffer from a lack of groundbreaking innovation. If it needs to fight with the likes of Google and Facebook, they have to be very innovative.

WHAT GOOGLE DOES RIGHT

1) The Biggest Provider of Free

Is there any other company offering this much for free? It continues to be Google’s ace. The fact that their services are largely free, doesn’t affect their quality a bit. In fact, the quality is more because they are free, as the free status is for a bigger aim – to conquer the world of information. Coming second in their core business of search is unthinkable at Google.

2) Active Where the Action is

Google has been successful in identifying some of the web’s biggest trends like text ads, video and social networking. And when new services like Twitter and upgradations like Bing appear, Google is quick to upgrade their own features for being competition ready. The length and breadth of Google’s offerings are unparalleled.

3) Well Integrated Offerings

All Google products are tightly integrated with the concept of Google Accounts and seamless transfer of information. For users it translates to an unbelievable ease of access to all Google services, and when the services become more complex like AdSense or AdWords, this integration is mightier.

4) Supporting All

Google is not just there for the big business websites or big publishers. In fact, small businesses and publishers will be pleasantly surprised at the Google tools at their disposal. That too, for free.

WHAT GOOGLE DOES WRONG

1) No Bells & Whistles

Don’t expect many bells and whistles in the Google interfaces. Google excels in the core functioning and not the interface. In fact, the slow upgradation of the Google products’ interface is now more noticeable due to slickly designed competitors like Facebook and Yahoo.

2) Too Many Missed Buses

Google too has missed many important buses. If any company could develop such runaway successes like Wikipedia, Facebook, & Twitter, it was Google. But the fact that it didn’t happen that way should be troubling for the company.

3) Great Features Remain Undiscovered

Google is not too good at teaching its customers how to best use their services to the full. Users often have to stumble upon key features, despite having an extensive help as well as discussion forums.

ICICI Bank Faces Tough Battles Ahead

For the last 15 years, KV Kamath and his core team’s growth model at ICICI Bank was the model to emulate for all other Indian banks. But 15 years later, nobody – including ICICI - seems to be much enchanted with the model.

In less than 15 years, ICICI Bank became the country’s second-largest in assets, the largest in credit cards, and the largest in international business.

But after the downturn hit, have these achievements become liabilities at ICICI?

Apart from Reserve Bank of India (RBI) control, the main reason why Indian banks escaped unscathed from the global financial crisis was their limited exposure overseas. But at ICICI Bank, their significant overseas exposure continues to hurt, as the global markets are still to recover.

ICICI’s once booming credit card operation’s real edge was offering credit cards to non-customers – something most other banks were wary about, and something that ICICI Bank has drastically reduced now on hindsight wisdom. Similarly, ICICI Bank’s leadership in assets might have been aided by unsecured retail loans.

ICICI continues to suffer an image crisis from a slew of customer complaints, government actions, and court verdicts.

An ICICI Bank officer was recently caught in a Rs. 5 crore cheque forgery case, ICICI’s huge suspense accounts created with unclaimed cheques have drawn Right-To-Information (RTI) submissions, Reserve Bank of India (RBI) has issued warning notes to ICICI Bank twice, Bihar Government has pulled up ICICI for not supporting farmers, students, & entrepreneurs, and ICICI Bank has lost in consumer courts over illegally hiking home loan rates.

ICICI needs to do some serious introspection over why there is such an image crisis and whether there is something intrinsically wrong in their operation. With a home-grown CEO like Chanda Kochhar – a core member of KV Kamath’s original team – now in control, this exercise can be easier than imagined.

Such a move would complement the ICICI website’s warning link on ‘Use of Unparliamentary Language by Customers’ as well as recent litigations like suing HDFC Bank’s HR Head for an unfair dig of referring to the ‘ICICI Culture’ with disdain.

After years of maverick banking, ICICI Bank now seems more like a regular bank. ICICI has shifted loan recovery in-house, have almost stopped unsecured retail loans, have cut down on expenses, and have started attending to smaller corporates through a new vertical for the first time – all of which were standard policies at ICICI Bank’s private and public competitors for long.

From peak growth levels of around 40%, ICICI is now struggling at single digit levels, even while most others are enjoying double-digit growth. Even for the quarter ended June 30 2009, almost all core business figures were down – gross advances by 12%, total deposits by 10%, total income by 2%, and net interest income (NII) by 5%.

At the same time, almost all problem figures were up at ICICI Bank – the ratio of gross non-performing assets (NPAs) increased to 4.63% from 3.72%, while the ratio of net non-performing assets were up to 2.19% from 1.74%.

The only solace for ICICI was that the net profit for the quarter zoomed by 21%, but this performance being driven mainly by treasury profits and extreme cost-cutting – both of which are quite difficult to replicate in the next quarters – the outlook remains bleak.

Being a private bank, ICICI Bank’s lending rates are much above public sector banks (PSBs), but when it comes to Net Interest Margin (NIM), it is just 2.4%, below the healthy 3%.

CRISIL has recently downgraded some of ICICI Bank’s bonds to ‘negative’ from ‘stable’. It reflects poorly on ICICI Bank’s asset quality and core earnings.

There have been speculations that ICICI Bank’s massive loan restructuring has helped to better their NPA numbers. If that is true, there is no doubt it will come back to haunt ICICI soon.

Even after restructuring loans worth Rs. 1400 crore, and significant upgradation of loans, there are analysts who put the impaired loan ratio of ICICI Bank at 8.5 - 9 percent.

Whenever top ICICI Bank officials speak about no-performing assets (NPAs), they speak about provisioning for it. It remains to be seen whether the creation and subsequent management of NPAs is such a simple issue.

Why UCO Bank Hopes 2009-10 to be a Landmark Year

UCO Bank might be facing complex challenges in capital restructuring, margins, and non-performing assets, but its social commitment to ensure financial inclusion for all is worth mentioning. Chairman & Managing Director SK Goel explains to Seasonal Magazine the strategies for maintaining this balancing act at UCO in the coming quarters. With capital restructuring entering its last phase this year, a planned FPO, and new strategies to tackle problem areas like NIM & NPA, FY 09-10 might prove to be a landmark year for UCO Bank.

Kolkata headquartered UCO Bank is one of India’s leaders in banking that meets the country’s complex social commitments. For example, UCO’s advances to the priority sector during 2008-09 constituted more than 50% of its total advances, and this public sector bank (PSB) also met all its lending commitments to the agricultural and weaker sections of the society. UCO Bank is also a two-time national award winner for lending to micro enterprises.

But such socially committed policies come with a price. UCO was one of the first banks to be recapitalized by the Government as soon as the downturn happened, as its Capital Adequacy Ratio (CAR) needed improvement.

UCO Bank’s Chairman & Managing Director SK Goel is a veteran banker of India, but also known for his non-conformist attitude with the industry. Under his leadership, UCO is trying to be more customer-friendly with new-generation features like no-holiday branches and express services.

Chairman Goel is also known to think from customers’ shoes, and his recent advice for existing home loan customers – a disenchanted lot in India as elsewhere – were enough to evoke a smile, if not renew hope. He asked home loan customers burdened with a high interest rate to try bargaining with their banks for a lower rate or move the loan elsewhere that offered better rates. Goel further explained that these were not unfeasible options as no bank would opt to lose a customer in whole, but would prefer lesser profits.

SK Goel’s leadership qualities have influenced UCO Bank positively, and it was with great pride that UCO, the lead banker (head of the State Level Bankers Meet) for Himachal Pradesh, announced that the state has become the country’s first in ensuring 100% credit inclusion for all households.

One of UCO Bank’s main challenges is to better its Net Interest Margin (NIM) that stood at 1.98% in 2008-09 as against the desired level of 2.5 to 3%. The bank is hopeful of moving its NIM to at least 2.25% in 2009-10.

To meet this and other challenges, UCO is focusing more on productive markets like the Indian state of Gujarat. The bank already has a significant presence there, but wants to double it within the next two years.

But in dealing with India’s state governments, UCO Bank has proved more than once that it has a mind of its own. Recently, it turned down a West Bengal government initiative to participate in a bank consortium to deliver Rs. 500 crore to fund land banks for industrial units. UCO cited its inability as due to a policy of not directly funding land acquisitions even if the acquirer is a state government. Considering Bengal’s poor track-record in industrial development, UCO Bank’s decision appears to be safe even otherwise.

To better the financial health of UCO Bank, a major restructuring process has been on for some time now, and is expected to enter its final leg this fiscal. The bank has already been infused with Rs. 450 crore by the Government in 2008-09, and will receive another Rs. 750 crore this year.

UCO recently got a boost when CRISIL upgraded their rating on the bank’s lower tier-2 bonds from AA to AA+, based on continued central government support to the bank.

As part of the ongoing restructuring, UCO Bank needs to raise around Rs. 500 to 600 crore on its own, out of which Rs. 136 crore is expected to come from a Follow-on Public Issue (FPO) late this year. The bank needs to manage the FPO perfectly, as a similar move last year had to be abandoned due to adverse market conditions.

UCO is getting into the general insurance business this year by floating a new company that will have other domestic and foreign entities in this sector. The bank plans to hold a 30% stake in the new entity.

UCO Bank grew its total business by 25% in 2008-09 to reach Rs. 1,69,890 crore, and plans to grow it on similar lines to Rs. 2.02 lakh crore this year on an expected credit growth of 25%. Profitability for the first quarter is already up by 15% over the corresponding quarter last year.

UCO’s footprint in India is significant, both geographically and sector-wise. The 66 year old bank has 2065 branches across the country and lends to all sections of the Indian economy - micro, small, medium & large enterprises, and spanning all sectors including retail, agriculture, services and infrastructure. UCO Bank has presence in Singapore, Hong Kong, China, and Malaysia, and correspondent arrangements all over the world.

UCO Bank’s Non Performing Assets (NPA) level stands above 1% and it is a prime challenge before the bank. Lately, the bank has started showing successes in its NPA battle.

Seasonal Magazine explores Chairman SK Goel’s strategies for meeting UCO Bank’s challenges through an interview:

You had recently remarked that during Non Performing Assets (NPAs) sale, UCO prefers cash over Security Receipts (SRs). Is this viable, considering the poor interest shown by Asset Reconstruction Companies (ARCs)?

Sale of NPAs depends upon the quality of the assets. It is not entirely true that ARCs show poor interest in cash transactions. Where the asset quality is good, UCO Bank does prefer and can demand cash sales over security receipts as SR is a long-term process and offers no certainty of realization. UCO has been quite successful in negotiating good terms with ARCs.

How do you assess the financial health of UCO Bank vis-à-vis its peers? UCO has challenges on both the Net Interest Margin (NIM) front and the Non Performing Assets (NPA) front…

There are challenges, but UCO Bank has made headway on both fronts, lately. Speaking about NPAs, for the first time in recent past, in FY 08-09 UCO’s total recovery from NPAs other than write-offs was higher than fresh accretion of NPAs thereby achieving a reduction in absolute NPA numbers. Our NNPA to Net Advance Ratio which was 1.98% as on 31.3.08 has come down to 1.18% as on 31.3.09. This has been achieved despite difficult economic condition prevailing in India arising out of the global financial meltdown. And UCO Bank continues to employ a two-pronged strategy on NPAs – firstly, better NPA management through recovery from stressed assets, and secondly, prevention of further slippages of assets. On the NIM front too, we are pursuing a dual strategy of putting maximum stress on mobilizing low-cost deposits, even while reducing our cost of funds.

Concerns have recently been raised about PSBs including UCO Bank resorting to mass restructuring of loans to temporarily clear NPAs from the balance sheet. But won’t they come back to haunt you in the next balance sheet? What is your take on this?

Restructuring was a one-time initiative declared by Reserve Bank of India (RBI) in the second half of financial year 2008-09 to counter the spillover effects of the global downturn which affected the otherwise viable industrial units and projects. This enabled banks to maintain credit quality. Most of the restructuring exercises undertaken by UCO Bank were outcomes of RBI guidelines on this matter. As a follow-up measure UCO has also put in place proper monitoring mechanism to keep the restructured accounts under strict vigil and prevent slippages to NPA category.

How will you counter the allegation that public sector banks’ (PSBs) performance is largely driven by government compensating for non-performing agricultural loans, as well as large government funds like the National Rural Employment Guarantee (NREG) switching to PSBs for disbursement, thereby forcing millions of hitherto unbanked to open accounts?

One has to understand that public sector banks in India are instruments of social change for the country apart from being business organizations. PSBs are mandated to undertake priority sector lending of which agriculture lending is a part. The Government’s relief measure to farmers by way of ADWDRS is a welcome relief to farmers who have been struggling to repay their loans for various reasons. For UCO Bank the proportion of NPAs out of the eligible amount is relatively small. Regarding the second part of your question, it is a universally accepted fact that financial inclusion is a pre-requisite for upliftment of the poor and the marginalized. Taking banking to the unbanked is a part of that process and disbursement of funds under NREG scheme through banks is meant to ensure proper delivery and prevention of leakages.

UCO Bank was one of the first banks to be recapitalized by the Government as soon as the downturn happened, and reportedly needs another round of fund infusion shortly. How did your Capital Adequacy Ratio (CAR) come to be lower than some of your peers?

During FY’08-09, UCO Bank continued to remain BASEL-II compliant with Capital Adequacy Ratio (CAR) at 11.93 per cent as on 31.3.2009. It is relevant to observe that UCO is Basel II compliant as we have international presence. RBI has also concurred with us that only Basel II CAR is applicable for UCO Bank from 31.3.08. There has been a change in the overall capital structure of UCO during the financial year 2008-09. UCO Bank has during the year restructured its capital as per the Capital Restructuring Plan approved by the Government of India. In accordance with the plan, a sum of Rs. 250 crore out of the total equity capital of Rs. 799.36 crore has been converted into Perpetual Non-Cumulative Preferences Shares (PNCPS), thereby reducing the total equity share capital of UCO to Rs. 549.36 crore and resulting in the consequential reduction in the percentage shares held by the GOI from 74.98 per cent to 63.59 per cent. As per this plan, Government of India would be subscribing a sum of Rs. 1200 crore in innovative capital instruments of UCO Bank , in two tranches of Rs. 450 crore and Rs. 750 crore during the years 2008-09 and 2009-10 respectively, to strengthen the capital base of the bank. UCO has already received Rs. 450 crore during March 2009 and has accordingly allotted PNCPS to the GOI.

Central Bank of India Plots Turnaround

Central Bank of India has been hit somewhat by the economic downturn, but the bank which is noted for its customer-friendliness and social commitment, is banking on these very factors to survive and thrive in 2009-10. Seasonal Magazine gets answers on Central Bank’s challenges from Chairman & Managing Director S Sridhar.

Though annual growth in profits has moderated to just 3.8%, Central Bank of India continued to put up impressive growth in total business, above 18%, in 2008-09. This growth is not bad considering the little room that exists for growth – at nearly 3500 branches and 2.5 crore customers, Central Bank is already a banking behemoth.

Due to the downturn, there was also a significant drop – more than 50% - in standalone net profit for the last quarter.

But Central Bank of India hopes to reverse all these with its customer-centric policies, mass banking initiatives, and RBI support.

Central Bank’s top management comprises of its Chairman S Sridhar, and Executive Directors Ramnath Pradeep and Arun Kaul. CMD S Sridhar was earlier the Chairman of National Housing Bank, and has chalked out an ambitious plan to double Central Bank of India’s customer base to 5 crores.

Recent customer-centric new initiatives from Central Bank include Cent Kisan Gold Card for farmers, bringing in private equity (PE) power into sick units, an SMS alert facility for savings and fixed deposit account holders, a subsidised home loan scheme for the urban poor, and a proactive involvement in public policy formulation by its Chairman S Sridhar.

The Cent Kisan Gold Card from Central Bank of India (CBI) provides a credit limit up to Rs. 10 lakhs against land for a five year term at interests that start from as low as 7%. Farmers can avail this for both farming and no-farming activities.

Central Bank is planning an innovative route to tackle underperforming loans in the commercial sector – by bringing in Private Equity (PE) funds with investment and management skills into these units.

The SMS alert facility is available for all Central Bank savings account holders for transactions of Rs. 5000 or more, as well as all fixed deposit customers, and will be available across the 1200 Core Banking Services (CBS) branches of CBI.

After a lull in recruitment for several years, Central Bank of India is now active on the recruitment front to drive growth as well as to bring down the average employee age. The new recruits will join a nearly 40,000 workforce, a quarter of which comprises MBAs, CAs, & LLBs.

Central Bank has always been noted for its social commitment, and the new initiatives also reflect this. It has tied up with Ahmedabad Municipal Corporation for development of low-cost housing units, for which Rs. 120 crores has been sanctioned towards loans at subsidized interest rates.

In tune with the Government’s vision of making banking more accessible to minorities, Central Bank of India has opened 40 new branches in minority concentration districts of the country, and has come up with top honours in this regard – second only to State Bank of India (SBI).

Chairman of Central Bank, S Sridhar is known for his proactive participation in forming public policy, and his recent cautionary remarks on the move by a section of the real estate industry to hike prices, gathered popular support. Sridhar termed the move short-sighted and explained that the time was ripe for a recovery only if the real estate prices adjusted a bit more downwards or at least stabilized.

The Mumbai headquartered Central Bank of India’s loan portfolio has a significant 18% exposure to agricultural loans, ahead of many of its peers. However, there is risk too from this kind of farming-friendly policies. Banks have been forced to waive farm loans, but so far they have been compensated for only 32% of the waivers; for the remaining, it will be a long wait of another two years.

It is not only in agricultural loans, that the bank shows its customer friendliness. Even in a difficult year like 2008-09, Central Bank was ranked as the ‘Best Education Loan Provider’ and the ‘Second Best Home Loan Provider’.

Central Bank of India was also quick to offer home loans at a fixed rate of 8% to tide over the current crisis in the real estate market.

Central Bank is also aiding India’s state governments to kick-start growth – the best recent example being the Rs. 11,000 crore corpus fund that has been readied to assist Madhya Pradesh’s Trade and Investment Facilitation Corporation (TRIFAC).

Despite Central Bank of India’s stock not coming up with an impressive performance in the stock market, the bank is mulling a right issue or a follow-on public issue this year to raise capital.

Central Bank’s recent move to sell off Rs. 102 crore worth of Non Performing Assets (NPAs) will largely be from their corporate loan book. Unlike many other banks, CBI is still hopeful of Asset Reconstruction Companies (ARC) to manage their NPAs.

The financial health of Central Bank of India needs improvement as it is challenged on both the Net Interest Margin (NIM) front and the NPA front, when comparing with RBI guidelines.

Serious concerns have recently been raised about public sector banks (PSBs) resorting to mass restructuring of loans - in response to an RBI directive – but which might have temporarily cleared NPAs from their balance sheets. A small percentage of restructured Central Bank loans might also fall in this category.

This year, Central Bank of India plans to scale up their retail loan book from 9% to 15%, and their Medium & Small Scale Enterprises (MSME) loan book from 8% to 10%. With an already fat farm loan book of 18%, these are clear indications that Central Bank of India is not only looking at the big corporates for growth.

Will Indian Overseas Bank Get Stronger Soon?

Indian Overseas Bank had a difficult 2008-09, which it doesn’t want to repeat this fiscal. Major measures are now on to tap lucrative overseas markets like Malaysia, focus further on its creative business of film-financing, toughen its battle on the NPA/NIM fronts, and solidify its reputation of reliability with a 3-Way Disaster Recovery facility. Seasonal Magazine gets inside IOB through an interview with Chairman SA Bhat.

Indian Overseas Bank, the Chennai headquartered public sector banking major is now just 50 short of 2000 branches, with a business mix of 1.75 lakh crore. Under Chairman & Managing Director, SA Bhat, IOB is taking the challenging year of 2009-10 head on, with a lot of innovative measures.

Combining its might with fellow banks, Bank of Baroda (BoB) and Andhra Bank, Indian Overseas Bank is starting a new banking subsidiary in Malaysia this year. It is also applying consortium-finance together with Exim Bank to fund a mega movie – the Rs. 70 crore ‘De Dhana Dhan’ starring Akshay Kumar and Katrina Kaif, and directed by Priyadarshan. Earlier IOB had financed the Rajanikant starrer ‘Sivaji’ which went on to become the highest grossing Tamil film ever in history.

When banks collapsed one after the other in US, the government there had turned to some of the most reliable banks like JP Morgan Chase and Bank of America to save them by mergers. A similar situation had arisen with Pune-based Shree Suvarna Sahakari Bank (SSSB) three years back, and it was Indian Overseas Bank that Government of India chose to take over SSSB. On 20th May 2009, IOB wound up the protracted steps of takeover, and the SSSB branches became Indian Overseas Bank branches. Everyone in the banking industry expected customers of SSSB to rush to IOB on day one to claim their deposits which had been frozen for three years. But it was the reverse that happened. The SSSB branches of Indian Overseas Bank attracted new deposits worth Rs. 6 crore, 1000 new accounts, and renewal of 10,000 fixed deposits, all in just the first five days of operation.

Indian Overseas Bank, though a moderate performer in the stock market, has garnered recent attention with LIC buying nearly 50 crore worth of IOB shares. Chairman SA Bhat has been a Bank of India (BoI) veteran, before moving on to UCO Bank as its Executive Director, before taking over IOB’s reins in June 2007.

Seasonal Magazine quizzes SA Bhat on Indian Overseas Bank’s challenges and strategies:

What prompted Indian Overseas Bank to go for a new banking subsidiary in Malaysia this year? And why is it a joint effort with two other banks?

Overseas expansion is expected to be a major growth avenue for Indian banks this year. Malaysia was a natural fit as the country has a significant ethnic population of South Indian origin. Indian Overseas Bank being headquartered in Chennai, has a natural flair to address these customers of South Indian origin in Malaysia. We already have a smaller presence there, the feedback from which was promising. Coming to the second part of your question, the main reason for a joint effort with Bank of Baroda and Andhra Bank was as a means to manage the high costs of setting up a bank there. This way, each of us can bear the required capital load better.

IOB has always been a moderate performer in the stock market. With LIC recently taking up Indian Overseas Bank shares worth Rs. 50 crore, do you expect a better positioning?

I wouldn’t agree that IOB was always a moderate performer. But, yes, the scrip encountered some problems when a foreign institutional investor (FII) offloaded his 10% stake in the bank. Now, that is what we call a huge volume sale, and it reflected in the scrip’s further performance for some months. But soon other investors realized that that sale was a one-off case, and that the IOB stock is basically strong. As of LIC taking a significant stake, I would say that it has been good for them as they could buy IOB cheap, and now it is soaring.

Indian Overseas Bank is now applying consortium-finance together with Exim Bank to fund a mega movie – the Rs. 70 crore ‘De Dhana Dhan’. Isn’t it a risky proposition?

Financing movies are not something new to Indian Overseas Bank, as you might know. Our movie finance portfolio includes Tamil hits like ‘Sivaji’. But our exposure to Bollywood has been rather limited. However, we are confident on this front as there is a due diligence that is followed in selecting the right project. An IOB panel examines aspects like the producer’s and director’s track record, who all are starring in it, and other factors. For example, ‘De Dhana Dhan’ is by Priyadarshan and stars Akshay Kumar and Katrina Kaif, which shows it is an ambitious project. And even if a movie doesn’t do as well as expected, the bank is covered by way of primary security and collateral security. The primary security is the rights (prints) of the movie, and collateral is something unrelated like property etc. I think that film financing is just another arm of conventional financing that can be highly prospective if done correctly. It is just a case of matching the risks and rewards. See the case of ‘Sivaji’ that Indian Overseas Bank financed. This Rajanikant starrer went on to become the highest grossing Tamil film ever.

By registering just 10% growth rate in fiscal 2008-09, IOB has become one of the slowest growing banks in India. How do you plan to overcome this challenge?

When you say 10% growth rate, please remember that it is only in profits. Because, Indian Overseas Bank’s overall growth rate was much higher, much in tune with the industry. On the profit front, yes, we were hit due to the economic downturn, NPAs, and other factors. We need to work more on our margins. But overall we are confident. We play the game systematically. IOB won’t be like some aggressive banks who grow at 40% one year, and struggle with 0% growth the next. We prefer to grow with the industry.

On the loan front, is Indian Overseas Bank battling low demand for high-quality loans? Recently, you had opted to part-finance the beleaguered Jet Airways to the tune of hundreds of crores. Not many banks were willing for the risk…

I don’t agree that IOB is facing a dearth of high-quality loans. Due to the economic downturn, maybe, many conventionally good loans have turned riskier. And I don’t agree that many banks were unwilling to take risk with Jet Airways. In fact, Indian Overseas Bank is not going on this alone – a consortium is funding Jet. I agree that the element of risk is there. The airline industry is down and Jet is also struggling with the industry. But at IOB we have faith that both will bounce back. As I told you, it is a matter of balancing risks with rewards. Without such risks our Net Interest Margin (NIM) will continue to suffer.

How do you assess the financial health of IOB vis-à-vis its peers? Very few banks are challenged like Indian Overseas Bank on both the Net Interest Margin (NIM) front and the Non Performing Loan (NPA) front?

Well, our NIM has improved to 2.84% which is not as bad as you think. I think that it might improve even more to reach 3% this fiscal. But on the NPA front we have suffered a lot during the past year. That is where the downturn hit Indian Overseas Bank hard. But we are systematically tackling this, and you can expect a significant change next year.

Serious concerns have recently been raised about PSBs resorting to mass restructuring of loans to temporarily whitewash Non Performing Assets (NPAs) from the balance sheet. Won’t they come back to haunt you in the next balance sheet? What is Indian Overseas Bank’s take on this?

I feel that such assessments are not entirely true. As far as Indian Overseas Bank is concerned, we have never mixed up these two issues – restructuring and NPAs. When the going got tough for many companies this year, we too went for loan restructuring as per RBI guidelines. Each case was assessed for their current problems and future viability. IOB believes in all our restructured loans, that they can rebound once the economic situation in India and the world improves. Only where we have no faith left, have we classified as Non Performing Assets (NPAs). It might be easy to brand something an NPA. But as socially responsible bankers, it is our duty to ensure that all viable companies and feasible loans are supported. Because, even though they might seem private projects, they are national assets when we take into consideration factors like their employment potential. It is Indian Overseas Bank’s duty to ensure that they succeed and not fail. Restructuring is a tool to help them bring back to viability as soon as possible.

But the temptation is always there, isn’t it – to classify some NPA-class loans as restructured loans to bring down the NPA numbers?

Well, if that is the case, why should I declare these much NPAs as we have done? IOB doesn’t resort to such tactics. We are very transparent.

Do you mean to say that you don’t expect none of IOB’s restructured loans to come up as NPAs next year?

Yes, we don’t expect that, because we will work with them towards that end. But as you can imagine, we should also expect a tiny percentage of them not making it due to now unforeseeable factors.

How will Indian Overseas Bank counter the allegation that public sector banks’ (PSBs) performance is largely driven by government compensating for non-performing agricultural loans, as well as large government funds like the National Rural Employment Guarantee (NREG) switching to PSBs for disbursement, thereby forcing millions of hitherto unbanked to open accounts?

Regarding NREG, I wouldn’t like to comment. About your first question, yes, when a loan waiver is in place, the government would compensate. If we had got the full compensation, what you had said would be correct. But it is not the case. I think at IOB the compensation stands at around 10% now. That means, if we had lent Rs 500 crores for agriculture, we have been compensated for only Rs 50 crores until now. When the full compensation arrives, yes, it will help our numbers.

Indian Overseas Bank has recently commissioned a second disaster recovery site at Hyderabad. Can you explain the need for this facility?

Yes, IOB has become one of the few banks in the country with a second disaster recovery site. It is a major step in the 3-Way Disaster Recovery set up we were implementing. Under this, we have a Primary Data Centre (PDC) and Command Centre in Chennai at different sites, and a Disaster Recovery Centre hosted at Hyderabad. Using technologies like auto fail-over and asynchronous replication, Indian Overseas Bank will ensure business continuity and uninterrupted service to our customers.

Can Indian Bank Sustain the Turnaround?

From neck-deep in trouble a few years back, there is no doubt Indian Bank has managed a turnaround under Chairman MS Sundara Rajan.

But Indian Bank is still a poor performer in the bourses, despite having attractive P/E and P/BV ratios. There are chances that this has got something to do with the massive trust erosion the bank started facing around a decade back.

While many of the country’s top performing banks in public and private sector drastically reduced their realty exposure growth in 2008-09, Indian Bank registered a substantial growth in realty exposure to the tune of 34%. The wisdom of this step is doubtful, taking into account the numerous reports appearing throughout 2008-09 about the impending realty slowdown. And this growth is also speculated to include not just fresh disbursals, but a significant loan restructuring component.

Most public sector banks (PSBs) have resorted to such restructuring, and this move might have temporarily removed some Non Performing Assets (NPAs) from Indian Bank’s balance sheets too for the time being.

Like some other PSBs, Indian Bank’s performance also might include benefits from agricultural loan waivers and large disbursements like the National Rural Employee Guarantee (NREG) scheme.