State-run banks strengthen retail strategy to tide over slowdown

B S Srinivasalu Reddy

Mumbai, Aug 26: CONSUMER loans are no more taboo as was the case about 25 years back. And state-run banks are going all out on this front.

Several state-run banks have decided to adopt a retail strategy to tide over global slowdown and its local impact to ward off risk and boost the bottomline. Some of the leading state-run banks that have subscribed to this strategy include State Bank of India (SBI), Bank of Baroda (BoB), Union Bank of India (UBI) and Bank of India (BoI).

Retail advances are “hot” for various reasons and among them are post-liberalisation changes and growing competition.

SBI deputy general manager A Mandal said, “Mid-cap companies and retail lending would be our thrust as a counter-slowdown strategy. Particularly, housing and consumer finance would be our focus areas for the next few months.”

Besides, the bank, after several meetings on the issue, decided that the pricing competitiveness in advances should be pursued all along, short-term loans should be favoured compared to long-term ones and to devise different schemes suitable to cater to various needs of customers, he added.

UBI deputy general manager MS Sundara Rajan said, “Retail banking has the potential to touch 25 per cent of total advances, but it depends mostly on the aggressiveness with which a bank pushes this channel.”

“The main advantages of retail advances include assured spread, widely distributed risk and lower non-performing assets (NPAs).

As the loans are for short term and to the salaried class, the risk is also limited and predictable. However, the transaction cost on retail loans are higher, but the assured margins insure against this cost,” added Mr Rajan.

Opined BoI general manager TR Madhavan: “We are also helping the process of pump-priming the economy by boosting infrastructure, and demand in the economy by expanding credit through consumer loans on white goods.”

After the Reserve Bank of India (RBI) brought down the bank rate, the spreads are also higher at four per cent on a prime lending rate (PLR) of 12 per cent, Mr Madhavan added.

BoB general manager, credit, N Balasubramanian said, “Instead of going for long-term advances carrying 13 per cent interest, large industries, which usually seek such loans, are also opting for low cost (about 10 per cent) short-term loans.”

On the other hand, even the institutions are also shying away from advancing term loans at this stage as they carry higher risk element.
Borrowers are classified into four categories according to their nature and size of their need for funds.

Small borrowers (Rs 2 lakh to Rs 10 lakh), traders and business men (who are not affected by gloabl slowdown), middle-level industries (affected when large industries suffer), and large industries (who invest in large capital expenditure projects).

Explaining the demands of the current scenario, Mr Balasubramanian said, “Now, banks are pressed for profit, unlike in the past. However, the general business atmosphere and industrial outlook is bleak.

With Rs 60,000 crore to Rs 65,000 crore of non-performing assets (NPAs), it is not for the banks to be heroic. And above all, we have to see that the shareholders’ and depositors’ interests are served the best.”

Mr Rajan at UBI noted that “a focus on retail banking was being considered by the bank, where credit growth is assured.”

The target clientele is mid-cap companies and consumers. Housing and auto-finance would be the thrust areas under personal finance.

For ensuring further credit expansion, the bank has launched a product to provide equipment finance to practising doctors. Such products would be launched for chartered accountants and lawers soon, he added.

But, all these are short and medium-term loans and there is no demand for long-term advances from companies as many of the projects were kept in abeyance due to slowdown fears, Mr Rajan said.

“We are confident of posting better performance in the quarter ending September 2001. It is not to say that we are not feeling the effects of slowdown. We are also thightening our belts,” noted Mr Balasubramanian.

BoB, in particular, is adopting a strategy to identify “good companies” and and offering the bundle of its products to them even during the period of slowdown.

Mr Rajan said that the banks have changed their ways according to the changes in situational demands. “Earlier, banks used to take deposits and lokk for a customer who needs funds.

Now, it is the other way round, as the conscious banks are accepting deposits from high networth individuals only after they find the parking slot.”

As far as cost of funds are concerned, they are nearing global levels. The RBI has been making it clear that the rates will come down futher.

“Thanks to globalisation, we are going the western way. It is good bye to orthodox banking!”, said Mr Rajan.