Friday, September 18, 2009

Andhra Bank Facing Unique Problems?

Beneath Andhra Bank’s healthy numbers lie some challenges that are unique to this Hyderabad headquartered public sector bank led by veteran banker RS Reddy.

For the first quarter of FY 09-10, Andhra Bank came up with reasonable numbers. Though the 230% rise in net profit was largely driven by treasury income that is highly unlikely to be repeated, the bank’s net interest income (NII) growth was reasonable at 30%.

However, the bank has a tough road ahead, owing to its exposure to sensitive sectors, SMEs, capital inadequacy, workforce revolt, & Andhra’s unique drought situation.

Andhra Bank has one of the largest exposures – at 42.14% - to retail lending that falls under the sensitive sector. Even while a major retail player like ICICI Bank scaled back their retail lending quickly, Andhra Bank’s ratio of retail lending is even larger than the country’s largest bank, SBI.

Similarly, Andhra Bank has a huge exposure to SMEs, a segment that is said to take maximum time to recover in India. The bank was also in news recently for admitting that a section of its educational loans without collaterals are overdue, with possible slippages into the NPA segment.

Andhra Bank seems to be fed up with lending to PSUs, with Chairman RS Reddy opining that such lending is not viable for the bank. But Andhra Bank itself being a PSB that enjoys all government and public support, such a stand will be heavily criticized. Andhra Bank had recently lost around Rs. 2 crore in the Rs. 5.5 crore cheque forgery case involving the PSU, State Finance Corporation.

Andhra Bank has recently approached Government of India for recapitalization, so as to have a capital adequacy ratio (CAR) of 12%. The bank has asked for Rs. 1150 crore, even while peers like Allahabad Bank, Canara Bank, & Bank of India has indicated that they don’t suffer from the same issue.

Andhra Bank’s all 1500 branches were paralyzed for a day recently when its managers went for a strike alleging ill-treatment. The strike was stunning on two counts. Firstly, it was led by the bank’s senior managers, and secondly, another nationwide strike by officers of all banks had just preceded this strike, signalling that there are issues unique to Andhra Bank. The ill-treatment and overwork alleged by senior managers are said to be an outcome of avoiding fresh recruitments for long.

RBI has registered cases against some Andhra Bank managers for submitting fake currency notes, making the bank one of the five banks to have such cases registered against it.

There are also chances that the drought situation in Andhra – that CMD Reddy has termed unprecedented – may weaken the prospects of this mainly Andhra based bank.


Tuesday, September 15, 2009

Why Syndicate Bank Looks Promising

With most growth figures including Net Interest Income (NII) up, and most problem figures including high-cost deposits down in the first quarter, Syndicate Bank is refocusing its efforts on the remaining challenges like its Non Performing Assets (NPAs) and its Net Interest Margin (NIM). Beyond the conventional measures, the bank is kick-starting further growth with its single-window ‘Synd Yuva’ campaign as well as the upcoming mobile banking / mobile commerce facility across 2000 branches. The bank will also be a major beneficiary of this fiscal’s farm loan compensation. Syndicate Bank has a new Chairman in Basant Seth, a veteran banker from Bank of India (BoI), whose last assignment was as Deputy MD of SIDBI.

The results for the quarter ended June 30 was one that made India’s banks as well as financial markets nervous. Have the growth figures gone up? Have the loss figures gone down?

As the results for the country’s public sector banks poured in one after the other in recent weeks, two things were clear – first looks were good for all, while second looks exposed the chinks in their armor.

Karnataka based Syndicate Bank was, however, an exception. Of course, they too suffered from the too-good-first-look phenomenon – net profits were trebled to 261.56 crore – but they had good constituent numbers to report.

The extremely good first-look of a 198% increase in net profit was driven mainly by a ten-fold increase in treasury income over the past year’s same quarter. But the real excitement was from core constituent figures with net interest income growing by 16%, global deposits moving up by 27%, global advances by 30%, and credit-deposit ratio moving up by 1.84%.

The only good figure that moved backwards was Syndicate Bank’s net interest margin that moved down from 2.34% to 2.23%.

But the bank has reasons to cheer as even while most growth figures advanced, it could cut some key problem figures. The bank shed high-cost deposits by 44%, and the gross NPA levels declined by 93 percentage points to 1.91%.

Under the leadership of its Executive Directors VK Nagar and R Ramachandran, the bank is aware of treasury income’s help this time, and has embarked on bettering the financial performance with a slew of recent measures like mobile banking and faster single-window customer signup.

Headquartered at Manipal once, Syndicate Bank moved its corporate office to Bangalore some years back, reflecting its ambition to establish itself as a leading public sector bank in the country. But respecting traditions, the bank still holds its Annual General Meetings (AGMs) at the smaller town of Manipal, often called the cradle of Indian banking.

Syndicate Bank will shortly receive the remaining two-thirds from the Government’s net farm loan waiver to banks.

Keen to shed off the lethargic image associated with India’s public sector banks, Syndicate Bank recently launched the ‘Synd Yuva’ campaign. A unique scheme that will challenge even new generation banks in its rapid and single window service, Synd Yuva will provide a customer with instant ATM card, Internet banking account, SMS banking facility, and credit card application.

Syndicate Bank’s Executive Directors VK Nagar and R Ramachandran assumed office in late 2008. While Nagar is a Punjab National Bank veteran, Ramachandran has a similar experience with Indian Bank. Both have undergone training in several niche banking areas in reputed financial institutes in India and abroad.

On the NPA front, Syndicate Bank has moved decisively to strengthen its in-house infrastructure for loan recoveries.

Syndicate Bank traces its history to 1925, when Dr. TMA Pai, together with two socially sensitive friends, Upendra Ananth Pai, a businessman, and Vaman Kudva, an engineer, started a small bank in Udupi with a capital of just Rs. 8000. Their objective was to extend financial assistance to local weavers who were then crippled by a crisis in the handloom industry.

By 1928, Dr. Pai came up with the idea of mobilising funds for these weavers from encouraging the habit of thrift & small savings from among the local community. This tiny Udupi bank would send their agents to collect daily deposits as low as 2 annas from each doorstep. In this way Dr. Pai’s bank got the funds to finance the weavers, and the daily depositors started saving – many of them for the first time in their lives.

Dr. Pai named his innovation as Pigmy Deposit Scheme, and this is the same name, this bank which we now know as Syndicate Bank, uses to this day. The only difference is that Syndicate Bank nowadays collects through 3700 Pigmy Agents, from 12.32 lakh depositors, a total daily sum of over Rs. 2 crores.

Interestingly, Syndicate Bank still collects a daily amount as low as Rs. 1, but the current Pigmy Deposits of the Bank runs to thousands of crores.


Tuesday, September 8, 2009

United Bank of India’s Make-or-Break Year

2009-10 will go down in United Bank of India’s history as the year that this Kolkata-based bank finally made it big. Or, the year in which it slipped further.

FY 09-10 will be a tumultuous year for United Bank of India, that poses challenges like recapitalization, capital restructuring, NPA management, and their initial public offer (IPO).

At 1.7%, United Bank of India has one of the highest gross non performing assets (NPA) among all PSBs, and United Bank’s recapitalization is a complicated process that involves capital restructuring too to make the bank look better in the IPO market. However, the last public sector banking IPO of 2008-09 was a disaster and so was the first public sector unit IPO of this year.

United Bank of India has also come under fire for the pathetic performance of one of its sponsored regional rural banks (RRB) – Manipur Rural Bank – which has the worst gross NPA at 40.35%.

It remains to be seen whether there will be takers to Chairman & Managing Director SC Gupta’s promise to double the business within the next three years.


Canara Bank Net Profit Declines QoQ

Is there anything hiding behind Canara Bank’s 352.7% YoY rise in net profit?

Unlike some of its peers, it is not just stupendous treasury income, or the corresponding last quarter’s poor performance. The sequential or QoQ growth has been, in fact, a de-growth of 22.7% at Canara Bank.

Though suffering from an exposure to the troubled carrier Air India, Canara Bank continues to be approached by the likes of Tata to help with their JLR blunder in UK.

Canara Bank’s recent changes in their home loan procedures have attracted flak for making customers run from pillar-to-post - architect-to-evaluator-to-contractor - multiple times.