The Bank of Maharashtra (BoM) plans to have a presence in most of the country’s 727 districts as part of its strategy to reach a total business size (deposits plus advances) of 5 lakh crore by the end March 2024 against around ₹ 2.97-lakh crore at the end of September 2021.
In an interaction with Activity area, managing director and CEO of AS Rajeev, stressed that his bank has systems and processes in place to ensure that the quality of sanctions improves, that slippages are brought under control and that the costs associated with the outsourcing of ATMs and IT, rent and electricity, among others, are cut.
Rajeev – who has headed the public sector bank (PSB) headquartered in Pune for almost three years – said his team is working to ensure that the BoM is among the top three banks in the world. countries in terms of efficiency parameters at the end of March 2022. Extracts:
How would you characterize BoM?
Although we are a public sector bank (PSB), we have the characteristics of a private sector bank (PvSB). Regarding financial parameters such as net interest margin (NIM / 3.27 percent), return on assets (RoA / 0.53 percent), current account deposits (CASA) (54 percent) percent of total deposits), we are also competitive as PvSB. Our overall loan growth rate (around 11% year-on-year) matches that of PvSBs.
We compete with PvSBs on all metrics except asset quality.
If we reduce gross non-performing assets (GNPA) and net non-performing assets (NNPA), we will be among the top three banks in the system, including PSBs and PvSBs. We are likely to improve our NNPA and GNPA position to 1% (from 1.73% end of September 2021) and 4% (5.56%), respectively, by end of March 2022.
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We aim to be among the top three banks in terms of efficiency metrics including NIM, Net Interest Income (NII) Growth, Cost / Income Ratio (CI), Credit Growth, CASA Ratio , GNPA and NNPA, by March 2022.
We expect credit growth of 14-15% in FY22. Next year, too, we expect the same level of growth.
Given that the government wants to have four to five SBI-sized banks in the public sector, how does the BoM fit into the scheme of things?
We are also trying to grow up. Our goal is to bring our balance sheet to ₹ 5 lakh crore by 2024. In the past and a half years, we have opened 200 branches. Of these, 150 to 160 branches were in states outside Maharashtra. Our pan-Indian branch network has grown to 2,000 after the recent opening of the Tirumala branch. Before the end of the current fiscal year, 100 branches will be opened. The council decided that we should have at least one branch in each district. Now we are growing organically. But in the next phase, we might see inorganic growth if the need arises. Once our financial situation improves further, we will try to achieve it.
What changes have you made to the way the bank operates over the past three years?
We have made structural and political changes. In terms of structural changes, the main changes we have made relate to credit administration.
For example, we have set up retail loan processing units and centralized sanctions to ensure quality. Additionally, we have engaged external agencies to perform due diligence on loan proposals. A due diligence certificate must be in place for each loan. This minimizes the possibility of fraud.
Thus, the sourcing, processing and sanctioning of loans are compartmentalized. A proposal can be rejected at any time. Thus, the quality of sanctions has improved. This made it possible to control the skids.
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We have revised the pricing for all advances, whether they are cash-based or not. Previously, there were some issues related to falling prices for bank guarantees (BGs) and unfunded exposure. The risk-adjusted pricing was not there.
For example, if we give BG, the bank should charge 2% commission based on the risk-adjusted pricing. But the price has fallen to 20-25 basis points due to competition. So, now we have done risk-adjusted pricing regardless of the borrower. Thus, interest income improved in the case of advances and other income in the case of non-fund-based exposures.
The position of sanctions, in accordance with the delegated powers, and the timeframe for execution are closely monitored. The numbers will speak for themselves. For example, branches previously used an average of ₹ 2 crore to ₹ 3 crore in penalties per year. Now that has increased three to four times over the past two or three years.
Three years ago, quarterly operating profit was 250-300 crore. Now that has increased almost fourfold to 1,200 crore per quarter.
What savings measures have you put in place?
We revisited all cost centers such as rent and electricity. For example, the rent we pay now is much lower than what we paid three years ago. Previously, some branches spread over 5,000 to 6,000 sq.ft. Now the branch area has been reduced to 1,300-1,500 per square foot.
Previously, a number of operational areas were in outsourced mode. We changed the installation model of operating expense / opex ATMs (whereby a managed service provider deploys and operates ATMs for the bank) to capital / capex (the bank sets up its own ATMs for the bank). automatic).
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The cost of an ATM is only 3.50 lakh. So, if the useful life of the ATM is seven years, the capital cost is only 50,000 per year. Branch staff load cash from on-site ATMs. For example, if 500 transactions take place per day at an ATM, we have to pay approximately 6,000 to the service provider. Thus, the expenditure on this account was almost 2 lakh per month. Now we have an investment cost of about 5,000 per month and there are no other costs because the staff are charging the money. Thus, the cost of this account has dropped considerably from 2 lakh per month to 5,000.
By switching to electronic surveillance at ATMs, the cost of security has dropped to 4,000 per ATM per month from 1 lakh (about 30,000 per security guard for three shifts) earlier for physical security.
We used to outsource certain functions within IT. The cost of outsourced employees is three times that of our own employees. Thus, we have recruited almost 250 to 300 IT experts in the last two years, replaced the outsourced people, and as a result there has been an improvement in quality and a reduction in costs.
Earlier (three years back), 250 crore to 300 crore was operating profit per quarter. Now that has increased almost fourfold to 1,200 crore per quarter.
