Shyam Srinivasan wears many hats. Besides being the MD & CEO of the Kerala-headquartered Federal Bank, he is also member of an RBI panel on ?Capacity Building in Banking Sector? and the chairman of the Kerala state council of industry body CII. In a telephonic interview with Arun S, he said the RBI panel will focus on ways to improve risk-management capacity in banks through use of analytics and technology. Excerpts)
You were recently named a member of an RBI panel set up to examine the Financial Sector Legislative Reforms Commission recommendations on enhancing skill building and capacity development in banks and non-banks regulated by the RBI. As one of the terms of reference is to examine if the members on bank boards also need to be certified by an appropriately designed course, which could be made mandatory for every individual before appointment to the board of a bank, are we going to see some changes at the bank boards following the panel?s report that is expected by April 30?
The panel has to meet and discuss what kind of capacity building requirements are needed given the challenges facing the sector and what the banks should do in terms of skill development right up to the top level. The main thing is to improve risk-management capacity, appreciation of analytics and use of technology in the context of customer convenience.
A lot of investment has to go into this. It is important to understand the client a lot better. It is an evolutionary process for analytics, and knowing the business of the clients better.
Will some recommendations be mandatory given the high NPAs of banks and the efforts being made to tackle that?
That I can?t say, but banks will be required to follow the RBI guidelines. In most countries, the banking institutions are required to have essential skills sets. In India, for instance, you have Amfi certification for mutual funds and Irda certification for the insurance industry. However, other than Certified Associate of Indian Institute of Bankers (CAIIB), there is no banking certification programme.
In our bank, we look at the eligibility criteria of officers sanctioning big loans, including their work experience, track record and the need for an interview / test.
We have a ?Credit Initials? system in place in our Bank, wherein an employee earns the right to sanction loans based on various parameters like track record, grade of employee, clearing of test, etc.
Recently, Federal Bank got government clearance to hike the foreign equity participation in the bank from 56.16% to 74% and, according to the proposal, the FDI inflow by NRIs/FIIs and other foreign bodies would be around R1,400 crore. What does this mean for the bank in terms of its expansion plans?
We are well-capitalised. This was only a technical regularisation of an existing approval of our shareholders vide February, 2006 resolution. It will not change anything at the bank. The approval is subject to the aggregate shareholding by FIIs and NRIs not going beyond 49% and 24% of the bank?s paid-up equity share capital and an individual FII/NRI holding of up to 10% and 5%, respectively as per Fema regulations.
However, as per the Bank?s articles of association, there is restriction for purchase of shares of the Bank above 4.99%, whereby prior permission of the RBI is required for investment in shares of the bank by any individual/entity beyond 4.99% of the paid-up capital of the bank.
Why did your employees? union oppose the move by questioning the urgent need to go for foreign capital instead of domestic capital?
It was unfortunate. What is important is that we are focusing on the quality of our portfolio due to which our bad loans are improving even during this time of economic slowdown when other banks have seen their non-performing assets increasing.
A Kerala government-owned non-banking finance company recently got the RBI approval for Islamic banking. What are the challenges, given the relation that Kerala has with the Gulf region and the possibility of more such entities giving competition to banks like yours that have a major presence in the state?
Ethnic banking is always an opportunity and, in that context, Islamic banking is a business case worth evaluating. But I don?t see any immediate challenge to our bank?s business in the state. In the case of Islamic banking, one needs to have proper knowledge on how to be Sharia-compliant. However, getting the scholars who have the right knowledge in that field is crucial. For about four years, I have lived in Malaysia, where Islam is the predominant religion. One needs to follow specific mandates when it comes to Sharia-compliant banking.