Early last year, officials from a Mumbai-headquartered conglomerate, weighed down by way of its massive debt, sent a most sensible finance executive to Chennai, to work out a big-ticket loan from Indian Bank. The financial institution weighed the proposal of the highly leveraged corporate, and stated a straight no. The clout of the crowd’s high-profile promoter didn't faze the financial institution officials.
This unrelenting readability in its approach to lending is one of the elements that has scripted an unlikely turnaround for Indian Bank, the 111-year-old Chennaiheadquartered establishment. Just twenty years in the past, it was once mired in a corruption scandal and wanted a central authority bailout to live to tell the tale. Its then MD was once jailed. Now, the tale has dramatically reversed. It’s one of the crucial most effective two nationalised banks, out of a cohort of 19, which made a benefit last fiscal year. It has the lowest non-performing property (NPAs) in the industry at a time when spiralling NPAs have turn into a threat to many banks. Its publicity to sectors susceptible to scandal or industry failure, similar to gems and jewelry or power, is very low.
It’s an instructive story about sticking to the basics in industry.
One of the secrets and techniques in Indian Bank’s lending arsenal is to call for collateral with sentimental value, similar to a promoter’s ancestral home, along with number one securities such because the deed of the venture land and so forth. When a loan turns bad, the financial institution has an additional leverage in negotiations.
Remarkably, Indian Bank has no publicity to quite a few firms that have not too long ago misplaced banks some huge cash, including Vijay Mallya’s Kingfisher Airlines and companies similar to Essar Steel, Jaypee Infratech, IVRCL, which were referred last year to National Company Law Tribunal (NCLT) underneath the Insolvency and Bankruptcy Code, for a well timed solution.
Indian Bank’s NPA ratio is one of the lowest in the industry. Gross NPA is at 7.37% of gross loans and internet NPA is at three.81% for 2017-18. Low NPA way the financial institution doesn’t need to set aside cash to provision for it in its books, allowing it to declare better earnings. In FY17-18, as many as 17 out of 19 nationalised banks have been in the red, with most effective two banks — Indian Bank and Vijaya Bank — bucking the craze. Indian Bank made a internet benefit of Rs 1,259 crore whereas Vijaya Bank’s internet benefit was once Rs 727 crore.
These results should be against the carnage in the benefit and loss statements in their peer workforce during the similar period of time. The internet loss of Punjab National Bank, for example, was once Rs 12,283 crore in 2017-18 whereas for Union Bank of India, Bank of India and Central Bank of India, the web loss during the fiscal year was once over Rs 5,000 crore each. Even the flagship SBI, which is a huge PSU financial institution but no longer a nationalised financial institution, took successful after five of its pals — State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore, State Bank of Hyderabad and State Bank of Patiala — merged with it last year. The financial institution registered a internet loss of Rs 6,547 crore last fiscal year.
Amid this gloom in the banking sector, how may then somewhat identified financial institution with a presence largely in south India, ship stellar results? ET Magazine met the financial institution’s most sensible control at its headquarters in Chennai to understand the lender’s approach. MD and CEO Kishor Kharat, CFO PA Krishnan, executive director AS Rajeev, basic managers S Chezhian and M Nagarajan have been among those we interviewed. Here are probably the most takeaways.
Safe Exposure
First, Indian Bank’s conservative tag, something for which the financial institution was once ridiculed up to now, has turned into its key asset. While the Reserve Bank of India’s February 12 round that laid down strict timelines on insolvency complaints got here as a shocker to maximum banks, Indian Bank breathed simple thanks to its decrease NPA burden. Secondly, it’s no longer that the financial institution has no publicity to firms suffering to repay debt. Where it does, in firms similar to Bhushan Steel, ABG Shipyard, Alok Industries, etc, the loan quantities are rather small. Thirdly, the financial institution’s share of advances in the RAM sector (retail, agriculture and MSME) is excessive at 57%, this means that its publicity to corporations is less than a lot of its friends.
In power, a sector that has piled bad news on lenders, Indian Bank’s advances as on March 31, 2018, have been `10,148 crore, or 6.5% of its gross advances, which is less than those of its friends. The control of the financial institution insists that they aren't shying clear of lending to corporations and are willing to increase massive credit score, but most effective to those time-tested firms. Some of its shoppers similar to JK Tyres or Tamil Nadu’s Nalli Silks had been a few of the financial institution’s favorite borrowers. Fourthly, the financial institution managers insist that they don’t lend in sectors where they have no in-house experience. The gems and jewelry sector, for example, is a no-go house for the financial institution. The general publicity is an insignificant 0.05% of the financial institution’s domestic advances.
Sankara Narayanan, the MD and CEO of Vijaya Bank, the one other nationalised financial institution to remain in the benefit zone during the last fiscal year, additionally emphasised the virtues of caution in lending. “Our power is retail with a mean enlargement of 25% and likewise the decrease risk-weighted property. We entertain most effective viable corporate accounts with appropriate collateral and do instructed follow-u.s.on recoveries.”
Vijaya Bank has persisted its winning streak, registering a internet benefit of Rs 144 crore in quarter ended June 30. Indian Bank’s results for the period are anticipated next month.
Clearly, being conservative is the brand new mantra in the banking sector.
For Indian Bank, arrange in 1907, the adventure has no longer been with out turbulence despite the fact that.
A big rip-off hit the financial institution in the mid-1990s when M Gopalakrishnan, the then chairman and managing director, extended loans to undeserving politicians and corporations. The financial institution ended up creating a loss of Rs 1,727 crore in 1995-96, something that wiped out its capital base, forcing the federal government of India, its primary shareholder, to infuse capital and one way or the other keep the financial institution afloat. In 2009, a unique CBI court docket sent Gopalakrishnan to prison for 14 years, at the fees of cheating on loan disbursals.
Business Growth
The aftershocks of this rip-off have been so intense that the financial institution control for the next many years decided to lend very cautiously, even sacrificing its industry enlargement. By March 2017, the financial institution was once ranked 14th in relation to general industry among nationalised banks. The financial institution realised that it had to do something.
In May last year, a few hundred key officials of the financial institution have been taken to Kodaikanal, a hill station in Tamil Nadu, to brainstorm the street ahead. And the consensus that emerged was once that the financial institution, which was once losing its market share principally to new sensible private players, should reboot and make a selection a rapid industry enlargement path. The Kodaikanal offsite ended up getting ready a five-year plan to take its businesses (advances and deposits) to a degree of Rs 6 lakh crore by way of 2022. The routine sentiment on the brainstorming session was once this — if Indian Bank, with its sound financial well being and coffee NPAs, may no longer take at the might of the personal banks, who would?
Achieving the Rs 6 lakh crore target in the next four years will probably be a tall order. The determine these days is Rs three.71 lakh crore. Can the financial institution develop unexpectedly with out compromising caution and conservatism? We’ll to find out in 2022.
This unrelenting readability in its approach to lending is one of the elements that has scripted an unlikely turnaround for Indian Bank, the 111-year-old Chennaiheadquartered establishment. Just twenty years in the past, it was once mired in a corruption scandal and wanted a central authority bailout to live to tell the tale. Its then MD was once jailed. Now, the tale has dramatically reversed. It’s one of the crucial most effective two nationalised banks, out of a cohort of 19, which made a benefit last fiscal year. It has the lowest non-performing property (NPAs) in the industry at a time when spiralling NPAs have turn into a threat to many banks. Its publicity to sectors susceptible to scandal or industry failure, similar to gems and jewelry or power, is very low.
It’s an instructive story about sticking to the basics in industry.
One of the secrets and techniques in Indian Bank’s lending arsenal is to call for collateral with sentimental value, similar to a promoter’s ancestral home, along with number one securities such because the deed of the venture land and so forth. When a loan turns bad, the financial institution has an additional leverage in negotiations.
Remarkably, Indian Bank has no publicity to quite a few firms that have not too long ago misplaced banks some huge cash, including Vijay Mallya’s Kingfisher Airlines and companies similar to Essar Steel, Jaypee Infratech, IVRCL, which were referred last year to National Company Law Tribunal (NCLT) underneath the Insolvency and Bankruptcy Code, for a well timed solution.
Indian Bank’s NPA ratio is one of the lowest in the industry. Gross NPA is at 7.37% of gross loans and internet NPA is at three.81% for 2017-18. Low NPA way the financial institution doesn’t need to set aside cash to provision for it in its books, allowing it to declare better earnings. In FY17-18, as many as 17 out of 19 nationalised banks have been in the red, with most effective two banks — Indian Bank and Vijaya Bank — bucking the craze. Indian Bank made a internet benefit of Rs 1,259 crore whereas Vijaya Bank’s internet benefit was once Rs 727 crore.
These results should be against the carnage in the benefit and loss statements in their peer workforce during the similar period of time. The internet loss of Punjab National Bank, for example, was once Rs 12,283 crore in 2017-18 whereas for Union Bank of India, Bank of India and Central Bank of India, the web loss during the fiscal year was once over Rs 5,000 crore each. Even the flagship SBI, which is a huge PSU financial institution but no longer a nationalised financial institution, took successful after five of its pals — State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore, State Bank of Hyderabad and State Bank of Patiala — merged with it last year. The financial institution registered a internet loss of Rs 6,547 crore last fiscal year.
Amid this gloom in the banking sector, how may then somewhat identified financial institution with a presence largely in south India, ship stellar results? ET Magazine met the financial institution’s most sensible control at its headquarters in Chennai to understand the lender’s approach. MD and CEO Kishor Kharat, CFO PA Krishnan, executive director AS Rajeev, basic managers S Chezhian and M Nagarajan have been among those we interviewed. Here are probably the most takeaways.
Safe Exposure
First, Indian Bank’s conservative tag, something for which the financial institution was once ridiculed up to now, has turned into its key asset. While the Reserve Bank of India’s February 12 round that laid down strict timelines on insolvency complaints got here as a shocker to maximum banks, Indian Bank breathed simple thanks to its decrease NPA burden. Secondly, it’s no longer that the financial institution has no publicity to firms suffering to repay debt. Where it does, in firms similar to Bhushan Steel, ABG Shipyard, Alok Industries, etc, the loan quantities are rather small. Thirdly, the financial institution’s share of advances in the RAM sector (retail, agriculture and MSME) is excessive at 57%, this means that its publicity to corporations is less than a lot of its friends.
In power, a sector that has piled bad news on lenders, Indian Bank’s advances as on March 31, 2018, have been `10,148 crore, or 6.5% of its gross advances, which is less than those of its friends. The control of the financial institution insists that they aren't shying clear of lending to corporations and are willing to increase massive credit score, but most effective to those time-tested firms. Some of its shoppers similar to JK Tyres or Tamil Nadu’s Nalli Silks had been a few of the financial institution’s favorite borrowers. Fourthly, the financial institution managers insist that they don’t lend in sectors where they have no in-house experience. The gems and jewelry sector, for example, is a no-go house for the financial institution. The general publicity is an insignificant 0.05% of the financial institution’s domestic advances.
Sankara Narayanan, the MD and CEO of Vijaya Bank, the one other nationalised financial institution to remain in the benefit zone during the last fiscal year, additionally emphasised the virtues of caution in lending. “Our power is retail with a mean enlargement of 25% and likewise the decrease risk-weighted property. We entertain most effective viable corporate accounts with appropriate collateral and do instructed follow-u.s.on recoveries.”
Vijaya Bank has persisted its winning streak, registering a internet benefit of Rs 144 crore in quarter ended June 30. Indian Bank’s results for the period are anticipated next month.
Clearly, being conservative is the brand new mantra in the banking sector.
For Indian Bank, arrange in 1907, the adventure has no longer been with out turbulence despite the fact that.
A big rip-off hit the financial institution in the mid-1990s when M Gopalakrishnan, the then chairman and managing director, extended loans to undeserving politicians and corporations. The financial institution ended up creating a loss of Rs 1,727 crore in 1995-96, something that wiped out its capital base, forcing the federal government of India, its primary shareholder, to infuse capital and one way or the other keep the financial institution afloat. In 2009, a unique CBI court docket sent Gopalakrishnan to prison for 14 years, at the fees of cheating on loan disbursals.
Business Growth
The aftershocks of this rip-off have been so intense that the financial institution control for the next many years decided to lend very cautiously, even sacrificing its industry enlargement. By March 2017, the financial institution was once ranked 14th in relation to general industry among nationalised banks. The financial institution realised that it had to do something.
In May last year, a few hundred key officials of the financial institution have been taken to Kodaikanal, a hill station in Tamil Nadu, to brainstorm the street ahead. And the consensus that emerged was once that the financial institution, which was once losing its market share principally to new sensible private players, should reboot and make a selection a rapid industry enlargement path. The Kodaikanal offsite ended up getting ready a five-year plan to take its businesses (advances and deposits) to a degree of Rs 6 lakh crore by way of 2022. The routine sentiment on the brainstorming session was once this — if Indian Bank, with its sound financial well being and coffee NPAs, may no longer take at the might of the personal banks, who would?
Achieving the Rs 6 lakh crore target in the next four years will probably be a tall order. The determine these days is Rs three.71 lakh crore. Can the financial institution develop unexpectedly with out compromising caution and conservatism? We’ll to find out in 2022.
Meet India's 'best bank': The Indian Bank
![Meet India's 'best bank': The Indian Bank]()
Reviewed by Kailash
on
July 29, 2018
Rating:
