Banking with a difference

Bank of Maharashtra, which began operations in 1936 in Pune, is today a leading public sector bank. Excerpts from an interview with S Muhnot, Chairman and Managing Director of the bank:

Prospects for the banking sector
For the last few years, banking in India has been passing through a critical phase. The banking system is affected by way of non-performing assets (NPAs) consequent to lack of movement in certain crucial sectors of the economy.
The situation will take time to improve. The government has taken a lot of steps to get things going, especially relating to important sectors of the economy, so that the impact on banks is reduced and they can improve their balance-sheets.
Simultaneously, the Reserve Bank of India has also taken steps to ensure that some kind of restructuring is possible in the sector and more time can be given to recover loans from corporates.
This combined step by the government and the RBI is likely to make a difference to the banking sector, but there will be a time lag. Maybe in the last quarter of this fiscal we might see an improvement. The coming two quarters will be subdued.

Monsoon's impact on banking
This year the prediction is that the overall monsoon will be 107 per cent of the normal. People are more confident that the agricultural sector will pick up, especially areas reeling under the impact of drought continuously for the last two years.
The rural economy will grow and demand too will pick up. Investments were not happening in the past because rural demand was not there. And since new investments were not happening, banks couldn't grow to that extent.
Once demand picks up, capacity utilisation will also improve, profitability will improve, and NPAs will come down. All these are positives for the banking sector. And as the cycle starts moving, more new investments will happen. Banking growth will also happen.
This will be especially good for Bank of Maharashtra, as about 66 per cent of our business is in this state, which has been affected for the last three years by drought. The agri-sector had suffered.
The India Meteorological Department (IMD) has predicted that Maharashtra will get 127 per cent of the normal rainfall this year. This will drive rural demand and bring down rural NPAs. This demand will spill over to the non-agricultural sector as well.

Improvements in the infrastructure sector
The roads and highways sector has picked up significantly, with the government coming out with new schemes, including the hybrid model, which is part EPC and part PPP. The developer has to raise just 60 per cent of the funding. Many road projects have been allocated on the basis of this model.
I believe the road sector will start moving soon. Already, progress has been made on stalled projects and the National Highway Authority of India has been active. There is some traction relating to older projects, which are now near completion.
The launch of the Uday scheme in the power sector will make state electricity boards stronger. Till now, they could not purchase electricity - despite rising demand for power - because of their weak financial position. Uday also obliges them to raise tariffs, and much hinges on this. The scheme will take off if they can raise electricity rates.
Over the short-term, banks may lose, but when the portfolio becomes stronger, there will be further improvement and growth. Power units will also be able to perform better because of these reforms.
Coal production has also improved substantially and the movement and allocation of coal is getting better. The government is also working on power projects that have been stuck for a while. Hopefully, once these get resolved, then a lot of NPAs will disappear.

Inflation concerns
Inflation has been under control, but of late, there have been concerns, especially with food inflation going up. The consumer price index (CPI) is also rising and has breached the six per cent limit. The wholesale price index (WPI), which was negative, has become positive and is rising, which is of concern.
But I do believe that good rains would ensure that inflation remains under control. It will take some time for interest rates to come down. They may not come down in this quarter, but maybe in the second half of the fiscal, rates could come down. Primarily though, businesses are not affected so much by interest rates as by lack of demand - both rural and investment.

Rupee depreciation
Once inflation is controlled, the rupee too will not depreciate. However, there are external factors influencing the rupee. One of the most important is demand-supply. If FDI inflows increase because of the opening up of the economy, dollar flows will surge.
Then there are uncertainties in other parts of the globe, especially China, so more funds would be allocated to a stable and growing economy like India by foreign investors.
Another factor is oil prices - if they remain low, then the fiscal and trade deficit will be under control, which help in terms of the rupee. I am confident the rupee will be fairly stable and there won't be any volatility. A minor depreciation of four to five per cent can happen, but the RBI will control volatility.

Bank's NRI business
We are a medium-sized bank and our NRI remittances are not as much as of large banks. However, many Maharashtrians live in different parts of the globe and we get remittances from them. We give good rates for all our NRI deposits.
Our technology system is robust, including our online banking facility. We also have tough security standards, both for online banking and cards. And because of our robust systems, we can service our NRI customers anywhere in the world. We also meet up with NRI parents' associations in cities such as Pune and try to get deposits.

Bank's performance
We have shown good growth in terms of deposits, which have expanded by 13 per cent. Advances have grown by 10 per cent, while overall business has also grown by about 10 per cent.
Our topline parameters are also doing well. Similarly, we are doing well on the various social schemes of the government. We opened more than three million accounts under the Pradhan Mantri Jan Dhan Yojana.
Bank of Maharashtra is the convener of the State Level Banker's Committee (SLBC) in the state, and under its chairmanship, more than 13.6 million PMJDY accounts opened in the state. On the lending side, our Mudra loans have done very well. We coordinate with the other banks for Mudra loans, and Maharashtra has been declared number one in this area as well.
While we have met all our topline targets for business and government schemes, our bottomline has been affected by NPAs. But despite this, we ended the year 2015-16 with a net profit of Rs1 billion.  

Gulf presence
We will look at setting up presence in the Gulf at an appropriate time, especially when we are strong in terms of capital. The government has asked us to focus on the domestic market. We have raised capital in the past without any problem and last year there was no need to raise capital. Our capital adequacy ratio is 11.2 per cent, which is fairly decent.