The banks are making efforts to adjust to the new situation to scale up their operations. M Narendra, newly appointed CMD of Indian Overseas Bank in an exclusive interview with FE?s Kumud Das outlines his strategies to grow the banks? balance sheet.

How do you see both lending and deposit rate scenario?

Until the credit policy, rate scenario was showing an upward trend. RBI also hiked policy rates by 25 basis points each. After policy, market felt that inflation would come down to 6% by the fiscal end.

We see food inflation also showing a slight downward trend. Interest rate looks stable after the policy.

Further, there may be a pause in the interest rate. Still, in case inflation doesn?t come down, then RBI may have to hike key policy rates by 25 bps in future. The central bank has also indicated that in the current situation the interest rates may not go up.

How do you see the liquidity scenario?

The banks? resource mobilisation programmes are not keeping pace with increase in credit demand. But we have seen a growth in savings deposits. Fund inflows are likely to take place Other fund inflows in the form of FCNR deposits and inward remittances will also happen.

Cash in circulation will have to come back to the banking system by way of deposits as banks are offering attractive deposit rates now. All this will lead to satisfactory liquidity situation.

Also, the government has promised that it will infuse liquidity so as to ensure that the credit flow to the productive sector is not hampered.

Why are credit and deposit growth not picking up ?

As per the latest available data, credit growth so far in the current fiscal is over 20% on year-on-year basis, though there may be some variation on week-on-week basis.

There will be some lag effect in sanction and disbursement. Substantial availability of sanction limits for capex by corporates will happen now. Working capital needs of corporates will rise.

Turnover of the corporate houses will also start moving up. There is an inbuilt system of alternative credit like commercial papers (CP), initial public offering (IPO), external commercial borrowing (ECB), private equity placement. Even though there is an appetite for credits, all this has to be seen in totality, rather than seeing the credit growth in isolation.

Majority of credit is in core sectors like steel, cement, metals and engineering. Also it is seen in services sectors like health education, transport, hotels and infrastructure (power and road).

What are your bank?s expansion plans?

Our total business is likely to cross the mark of Rs 2.25 lakh crore by December and Rs 2.50 lakh crore by March next year as compared to Rs 2.06 lakh crore in September 2010. We have about 2,000 branches in the country. Also, we have six branches abroad at places like Singapore, Hong Kong, Korea and Colombo and representative offices in China and Dubai.

We look at them as growth centres and get an opportunity to participate in short and medium-term loans from Indian corporates functioning there. We will be opening 150 new branches by March next year and will set up 34 branches in the villages with population less than 2,000. We have applied for 104 branches from RBI. Expanding ATM network from 773 to 1,000 in the medium term and 1,500 in another six months is in the pipeline.

How do you see the NPA and its recovery at your bank?

My bank will be focusing on recovery, accounts and good credit monitoring upgrade by leveraging the existing information technology system. We have told all our colleagues that the asset quality and recovery are the two most important things for the bank. Our gross NPA was at 3.78% (Rs 3300 crore) as on September 30 and the bank plans to bring it down to 3.50% (Rs 3000 crore) by the fiscal end. Similarly, we want to bring down our net NPA below 1%.

What are the bank?s hiring plans?

We had recruited additional clerks, specialised officers having qualifications like MBA (finance and accounts), financial analysts, chartered accountants (CAs). We are now assessing new requirement for the current fiscal. We will be taking aggressive recruitment to create a fresh blood so as to reduce the average age of employees to 45 years as against the currently existing level of 55 years.

Also, we have put in place a succession plan as per which few of the mid-level executives, numbering nearly 150, have already been identified to take leading position within the bank. They will be specially mentored for development of the bank.

What kind of cost controlling measures will the bank adopt?

Any cost being incurred by the bank should be meant for the growth drivers. All other costs must be regulated, some of which may include renovated premises (rented premises). Also, there should be an opportunity for the use of e-channel so as to cut costs. Moreover, we are trying to reduce our cost on things like stationary, printing, postage and telegraph and telephone.

What are the bank?s diversification plans?

We have appointed KPMG as a consultant to look at various areas of our growth including capital market.