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Experts Interview
G. Nagamal Reddy
Managing Director and CEO of Tamilnad Mercantile Bank
One quarter into his appointment in June 2009 as MD and CEO of Tamilnad Mercantile Bank (TMB), Nagamal Reddy ran into heavy weather, what with a shareholder group fighting tooth and nail over board appointments and a High Court order looming up ahead. Things became tougher in October 2009 with RBI Regional director, K R Ananda mentioning, “The bank is having managerial problems.” But a positive November 2009 High Court order, upholding elections of new board directors, saw a new beginning for Reddy. In July 2010, Tamilnad Mercantile Bank was ranked second among all traditional private sector banks in India in the FE-E&Y awards. With the target to take the number of branches from 217 to 500 in the next few years, and the bank’s business to `50,000 crore by 2013, Nagamal Reddy seems unstoppable. Here, he chats up with Avneesh Singh of B&E giving his insights:
Q: In the new monetary policy, the repo rate has been increased by 0.25% and the reverse repo rate has been increased by 0.50% whereas the CRR has been kept unchanged. What are your views on the same?
G. Nagamal Reddy (GNR): This was expected, but of course the only thing is that the reverse repo rate has been increased by 0.50%, which is a little more than what we expected. We knew that the RBI will take some steps towards containing inflation. I think the main aim is that they want to contain inflation and they are looking at bringing it down to 6%.
Q: Your bank has been in the private banking space since the last nine decades. How’s competition from the new age private banks compared to that from the old age private banks?
GNR: There is no direct competition between us. Every one has got his own segment of customers. We do not have any competition from the new age private banks because our presence is not much in the metros; while new age banks are present in a big way in these centres. We are present in rural, semi-urban and urban centres.
Q:How is your bank catering to the sunrise sectors like micro, small and medium enterprises ?
GNR: Actually SMEs have been our focus because this is one sector which contributes the maximum to the GDP of the country and also to the employment. Since we are present mostly in the semi urban and rural areas, it automatically allows us better access to SMEs. Our growth in this segment has been very good in the last two years.
Q:Your bank is targetting business worth `26,000 crores in the present financial year? What will be the possible mix of deposits and advances?
GNR: We are looking at a target of `15,000 crores in deposits and `11,000 crores in advances.
Q: You also have mentioned a target of `500 billion in assets by 2013. What would be your basic? What is your strategy to achieve this target?
GNR: Our strategy is manifold, the simplest one is to open more branches. We have 217 branches as of now and by the end of March 2011, we plan to take the number of branches to 250. Thereafter, in the next 2 to 3 years, we plan to take the number of branches to 500. We have a very aggressive expansion plan to take the staff strength from 2500 to 5000. All these will automatically put us into the bracket of `50,000 crores.
Q:Many banks like Union Bank, Canara Bank and Andhra Bank have changed their logo as a branding exercise? Do you have any similar rebranding plans in the pipeline?
GNR: A changed logo and a re-branding exercise give added advantages of visibility because when you change your logo, you undertake a lot of publicity; and then people tend to give a lot of recall value to the bank. This is one thing that even we are thinking about; but it is only at a preliminary stage right now. At a right time, we shall also go for what you call brand building or re-branding but right now, it is too early to say anything about it. But re-branding is required and that is why a lot of banks have gone through the same. Once you have already spent 90 years with a particular logo, probably you need to make the society realise that the bank is also changing to show to the world that yes, we are also changing – this is clearly one physical appearance that makes the difference.
Q:The NPA of your bank is one of the lowest and stands at 0.24% as of March 2010. How’d you mange that?
GNR: The reason is that our employees do lot of due diligence compared to any other bank and that helps in identifying the right type of borrowers; our borrowers are not those fly-by-night kind of people who come and take the money and run away. Our people do lot of processing before giving money; therefore our chances of getting NPA are very less. And even wherever there are NPAs, our security cover is normally higher than other banks’; therefore, our recovery percentage is always high.
Q: But as of now, your CASA (current accounts, savings accounts) deposits are only 24.52% of total assets. Do you have any plans to increase them ?
GNR: Yes, over the short term, we’ll raise CASA deposits to 27% by March 2011; and by March 2013, we plan to take it to 30%.
Q: And the strategies by which you’ll achieve this?
GNR: In the last one year, we have conducted various campaigns to highlight the importance of CASA to all our employees. Therefore, they have now started understanding the importance of CASA deposits and also about what is required to improve the same. Earlier, we were happy collecting term deposits and giving high rates of interest; but now, in the last one year, we have been educating the importance of CASA because this will bring down our cost of deposits. We have succeeded in that in the last year when our growth in CASA deposits reached 40%.
Q: Do you see consolidation in the banking sector in the coming years?
GNR: We have been talking about consolidation in the banking industry for the last five years but nothing has happened so far except some of the small banks being taken over by big banks. But yes, large scale consolidation will happen sooner or later.
Q: You mentioned plans of raising `1,000 crores. How and from where do you plan to do that?
GNR: IPO is also one of the ways that we can raise money, but as of now, we are comfortable with our capital adequacy ratio (CAR). Maybe down the line, after one or two years probably, we will think of going for a public issue and probably before that our rights issue will also come.