City Union Bank, the south India-based old private sector bank, does not want to operate in the Twenty20 cricket format. The bank, which does not take offence at being termed a ‘conservative lender’, holds that prudence has helped it remain relatively safe at a time of turbulence. In an interview, N Kamakodi, MD & CEO, tells Sajan C Kumar, he believes in sole banking relationships backed by immovable collaterals and that this policy has helped the bank manage high recovery from NPAs. Excerpts:
What are the reasons for your steady growth?
When the present economic cycle began in early 2005, the bank gave precedence to efficiency and profitability over topline growth. So while infrastructure and corporate consortiums fuelled credit growth over the last decade, our bank focused on our core areas of SME, agriculture and commercial (trading). We believe in playing a test match or, to switch metaphors, running a marathon. We are not into a T20 match.
Don’t you think this restricts the bank from getting into newer areas?
In a way, what you say is right. But if you get into the basics, it is the same regardless of where you expand or open your branch: Deposits, advances and profit. It is immaterial whether we do business in Kashmir or Kanyakumari. It is not where we do business but how we do business that is more important. This does not mean that we shy away from growth. Our 12 years’ CAGR is 25%-plus. It may be from a small base but the consistency is there. Till about 50 years back, we focused on the Cauvery delta. After exhausting its potential, we spread to other parts of Tamil Nadu.
For the last three decades, at least one-third of our growth has come from outside Tamil Nadu. The point is we are not in a hurry. The size of our loans will be determined by our risk appetite. We are more comfortable in secured, single-bank relationships.
Has the bank ever faced any difficulties on account of being a small bank?
Now, with stock markets and business news channels having become popular, people are aware of us. Decades back, we used to have problems convincing customers. But private banks like ours still face many challenges. Some public sector undertakings refuse to accept bank guarantees and some government departments also discriminate against us. We have been pleading for our inclusion for tax collection purposes, but it hasn’t happened yet. Your bank has been able to maintain good asset quality…
As a bank, we maintain a very strong communication channel with borrowers. For example, after the global slowdown around 2008-2009, we helped our borrowers “restructure” their loans. The strategy was questioned but we had the smallest proportion of our portfolio turning into NPAs. We believe in sole banking relationships backed by immovable collaterals.
Are there any plans to raise capital?
We had a QIP and raised about R350 crore in mid-2013. Our capital adequacy ratio on December 31, 2015 was 14.63%, of which 14.17% is in Tier I. In other words, we are adequately capitalised. We don’t anticipate needing to raise capital over the next two years or so.
What are your plans for network expansion? What are the technological products in the offing ?
We have opened about 50 branches every year for the last two-three years. We opened our 500th branch at a place called ‘Chinthamani’ near Kumbakonam on the auspicious occasion of Mahamaham. We have 339 branches in Tamil Nadu. We plan to open 50-75 branches every year, of which roughly 50% will be in Tamil Nadu, 25% in other southern states and the remaining 25% in the rest of the country. We have been upgrading our technology continually. Our technology services are on a par with the best in the country. Already, 80% of transactions are being conducted through ‘Alternate Channels’. Our mobile banking and internet banking services are extremely popular with customers. Over 65% to 70% of our branches have cash acceptors and customers can avail 24-hour cash deposits and withdrawals. With the arrival of payments banks, payment systems are expected to go through a period of revolution. We are geared up for the same, having recently launched ‘Wallets’.
What are your plans on the CASA front?
We repeatedly face questions about how we maintain profitability despite having low CASA. Traditionally, we have been a low-CASA bank. But it has never affected our overall profitability. Our recent branch expansion and technology upgrade will impact on our CASA which is growing at a CAGR of above 20%. We have been selected as the banker of the Tamil Nadu local government. We expect these factors to help us achieve sustained CASA growth in the coming years.