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'Loan demand has improved in fourth quarter'
 
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March 24, 2009

It has been just three weeks since S Sridhar took over the as the Chairman and Managing Director of Central Bank of India [Get Quote]. Having worked with Exim Bank and National Housing Bank earlier, Sridhar is relatively new to commercial banking. He spoke to Abhijit Lele about the issues that he is dealing with in his new role. Excerpts:

What is your assessment about the challenges that the bank faces?

Making the bank a customer-focused organisation tops the agenda. While the bank has long-standing relationships, building further upon them is equally important for business growth. An improvement in staff competency and a thrust on contemporary work practices will also receive prime attention.

The average business productivity per employee was Rs 5.49 crore (Rs 54.9 million) at the end of December 2008, up from Rs 3.82 crore (Rs 38.2 billion) a year ago. Besides soft issues, technology upgradation - including qualitative use of the core banking platform � is necessary. The enhanced staff competency and technology initiatives will give the bank a modern look and feel.

The government has recently allocated Rs 700 crore to the bank and will put in another Rs 700 crore during 2009-10. How is this going to help you?

It will improve the capital adequacy ratio, provide more headroom for lending and expand the balance sheet. Another benefit will be an improvement in credit rating. The total capital adequacy at end of the third quarter was 10.02 per cent. The infusion has strengthened tier-I capital (it had slipped below 6 per cent � the floor set by the Reserve
Bank of India). The coupon on the tier-I instruments that the government will subscribe to is expected to be firmed up this week.

Your bank has reduced interest rates on home and auto loans over the last month or so. What has been the response?

There are some signs of growth in demand. We had lowered interest rates on home loans of up to Rs 5 lakh to 8 per cent. This is a very small business segment. Now, this benefit has been extended to loans in the Rs 5-20 lakh category too, and we are witnessing an increase in response.

How has your performance been during the current quarter, which is usually the busy season? What will be the year-on-year credit and deposit growth?

For the bank, there is a definite improvement in credit demand during the present quarter as compared with the third quarter (October-December 2008). I will comment on the specific numbers for the fourth quarter after the close of the financial year. The year-on-year growth in gross advances was 38.3 per cent till the end of the last quarter, with gross advances at Rs 81,467 crore at the end of December 2008.

The yield on government bonds has hardened this month. How is this going to impact the valuation of your government securities portfolio?

The impact will not be very positive. Let us see how the yields move during the remaining days of March.

The economic downturn has raised concerns of a rise in default risks. How will the bank deal with the issue?

The bank is alive to such risks and my effort is to be proactive. We are already restructuring viable accounts, which are facing temporary cash flow problems. The gross non-performing assets (NPAs) had declined sharply from 4.37 per cent in December 2007 to 2.81 per cent in December 2008.

The emphasis will be on preventing accounts from slipping into the NPA category. We will be careful in selection at the entry stage. Plus, a systematic study of industry trends should help us in picking up signals.

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