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Still Retain Almost 3/4 of the Market Share
Interview with Kalyan Mukherjee, Executive Director, Andhra Bank

What is your assessment of the current situation in the banking industry in India?
Currently, banking industry in India is on a robust growth path. Asset quality is high as evidenced by the very low Non-performing assets in the Indian banking industry. The fact that we have been largely immune to the global turbulences such as the subprime crises is itself an evidence of our robustness. Adherence to the systems and standard operating procedures and stringent compliance to regulations resulted in the robustness discussed above. During the past decade, especially since liberalisaion, we have progressed leaps and bounds in technology adoption and its adaptation to the changing needs. Currently, most banks are on course to rolling over to core banking platforms. Our banks are also well equipped to deal with challenges posed by Basel-II since most banks possess capital adequacy ratios well above the norm of 9%. Many of our banks have also emerged as global players over the past decade. Hence, I would say that Indian banking industry is well poised to taken on any future challenges as well as the stated competition from other players.

How do you view the Indian banking sector’s significant progress since nationalisation?
Nationalisation of the Indian banks have helped in achieving the socio-economic objective of extending the arms of banking to the rural and unbanked sections to a great extent. The Public Sector Banks have played a major role in this regard by setting up vast branch networks in rural and semi-urban areas for banking services. It is significant that even after private and foreign banks have arrived, public sector banks still retain almost three fourths of the market share. Even as of now, Indian banks, especially Public Sector banks are working towards total financial inclusion. However, the banking penetration in India is still not at the optimum level. The credit-GDP ratio, for instance, in India is only 45-50% while for China it is more than 100%. Around 50 percent are still outside the purview of the banking sector. Hence, though significant strides have been achieved since nationalisation, it needs to be carried forward with the same vigour to ensure that the benefits of banking is extended to all sections of the society. Hence, the need for financial inclusion as discussed above.

Where does Indian banking sector stand compared to international banking sector?
Indian banking sector is fast achieving scale, with many of the Indian banks setting up offices and branches abroad. However, there are no Indian banks among the top ten global banks. Hence, Indian banks are yet to emerge as powerful players in the global financial scene, though significant progress in that direction is being achieved rapidly.

However, in terms of best practices, we are at par with any of our global counterparts. The absence of exposure to the risky Collateralised Loan markets in the U.S is a case in point. Such robust best practices assured us immunity from major global crises even in the past. The Asian financial crisis is a case in point. Thus, I would say that while in scale, we have a long way to go our compliance with best banking practices are the best in the world. It is relevant to submit here that while financial giants like Societe General and Citi Group suffered heavy losses, there was no bearing on us and we emerged unscathed from the turbulence.

What are the key issues facing the banking sector today?
Today, banks in India are faced with several issues, which may impact significantly on their operational and financial performance, if not addressed in the right earnest. Some of the vital issues are:

Retaining talent, which is an issue especially for public sector banks in India
Bracing up for competition when the doors are opened for foreign banks by March 2009
Compliance with Basel-II guidelines in terms of credit, market and operational risk by ensuring that we are adequately capitalised to absorb any unforeseen future shocks
Achieving an international presence which requires further scaling up
Leveraging technology. In this regard significant progress is being made. Rolling over to Core Banking Solution is one such step.
Which are the thrust areas for banking sector in India?
There are several areas which require focus for the Indian banking system, of for that matter, banking industry anywhere across the globe. However, the thrust areas for the banking sector in India would be:

Focusing on Human resource planning in view of the huge requirements in the future
Maintaining market share especially after foreign banks entry post 2009
Maintaining the current standards of adherence to regulatory norms and compliance standards
Achieving higher penetration among the masses (financial inclusion) and more informal credit distribution
Greater focus on infrastructure and productive sectors
Finally, ensuring that the benefits of banking are accessible to all.

How do you look at the future of the Indian banking sector?
Banking industry in India has played a significant role in financial intermediation since independence and has played a vital role in contributing to the high GDP growth rate witnessed by our economy. In the future, banking will become even more decisive in order to sustain the growth rate. Banking will also see a transition to newer areas and customised products geared to meet the needs of the customer. Wealth management, portfolio management, risk management, etc. are already undertaken by some banks. Banks have also entered into areas like life insurance to increase market share and garner more fee-based income. Thus banking activity is significantly increasing in scope and it will be so in the future as well.

What will be the future strategy of Andhra Bank?
Our immediate objective is to achieve a transition from a mid sized bank at present to a large bank by achieving more than 120,000 crore of business by 2009. For this, we are planning branch expansion all over India and customising products to suit the changing needs of the customers. Technology is yet another area that we are focusing. We have already initiated the rollover to Centralised Core Banking Solution. Yet another focus area would be to go global we have a Representative Office at Dubai and got approval from New Jersey state in U.S. to start a Representative Office there. We have also formed an insurance joint venture with Legal and General, U.K. and Bank of Baroda. More such initiatives are on the anvil. Capital adequacy issues are also taken care of. However, we have enough headroom for raising capital which will boost the CRAR further. These are some of the future strategies of our bank.

What would you advise your customer to be the best way to manage the money?
Though I may sound a bit conservative, I would advise the customer that bank deposits must constitute a significant share of their savings portfolio. This is because of its inherent character of safety as well as immunity from huge volatilities seen in equity markets and mutual fund returns. Nowadays, banks have also ventured to offer portfolio and wealth management services to customers. Hence, customers can avail of such services as well.

What are you doing about improvement of the services of Andhra Bank?
As mentioned earlier, we have already initiated the rollover to centralised core banking platform, which will make banking hassle free for the customer. We have also introduced a slew of products like, Biometric and Mobile ATMs, AB Kiddy Bank scheme, AB-Quick (booking air tickets of Kingfisher Airlines through bank’s debit/ATM Card or any Visa Card), AB e-Rail ticket facility (general public can reserve train tickets through internet with debit cards, educational loans etc. In fact, educational loans are one area where we are active in a big way. Financial          inclusion is yet another area where we are actively focusing our attention on. We have already achieved 100% inclusion in Srikakulam in A.P. and Ganjam district in Orissa. I would like to reiterate the commitment of our bank to all the stakeholders and towards good corporate governance. Further, we would like to take financial decisions keeping in view ‘the concept of Corporate Social Responsibility’. Our motto would be achieving a steady steam of profits, without compromising on ‘customer satisfaction’ and the interests of our stakeholders and handling quality assets.

How do you see the banking industry in the year 2020?
Banking industry has been witnessing a compounded growth rate of more than 20% during the past decade and the trend is likely to continue in the future as well. It is estimated by leading think tanks like Goldman Sachs and McKinsey that the per capita income would also increase significantly in the future. A significant share of this would find its way into bank deposits. Moreover, banking transactions will also increase. One significant development would be emergence of the customers in the age bracket of 25-40 by 2020. Hence, banks will have to customise their products to suit these segments. The banking sector in India will be a mix of public sector, private sector as well as foreign banks. Customers will be offered a whole range of banking products to choose from. Banks will also enter newer, niche segments to sustain market share. Customer Relationship Management will become more relevant since there will be a host of players to suit products according to customer needs. Those banks which are able to differentiate their products relative to the other banks will emerge as the most successful ones.

Priority sector credit targets have not been met in many cases. What is the reason behind it?
Regarding Andhra Bank, I can say that we have met all our priority sector targets. This is because; we are wedded to social commitment, while maintaining a steady stream of profits. However, we are further expanding our reach in terms of offering banking services so that we can attain our priority sector targets well above the levels at present.

What about recent activities of Andhra Bank?
During the past one year, we have launched a slew of new products and services such as Mobile ATM, Biometric ATM, e-Rail ticket facility (general public can reserve train tickets through internet with debit cards), AB Kiddy Bank scheme, AB-Quick (booking air tickets of Kingfisher Airlines through bank’s debit/ATM Card or any Visa card) etc. During the current financial year, we have entered into Joint Ventures with LG and Bank of Baroda for life insurance business. Among banks having ‘Corporate Agency’ with LIC of India, our bank stood at the No.1 position with the maximum in premium income from bancassurance for the first half of the current financial year. One of our major achievements recently is the approval we got for opening a Representative Office in the state of ‘New Jersey’ from the New Jersey Dept of banking, USA. These are some of our recent activities that I wish to highlight. I would also like to state that we are well on course to meet Basel-II preparedness.

Any comments on government policy?
Nationalisation has enabled us to reach out to the masses in a big way. The government has been initiating measures aimed at granting more autonomy to banks though gradually. I would like to state that these need to be carried forward.

Have you any observation on any other issues?
I would like to add a few more points about our bank. I am happy to mention that we are the pioneers in many fronts. We were the first to start ‘banking on wheels’ where banking services are extended at the doorsteps of the people in unbanked and under-banked areas. We also the pioneered ‘credit cards’ among banks in India. We are also the first public sector bank to successfully implement the idea of ‘client relationship officers’. ‘Biometric ATM’ and ‘Mobile ATM’ are the other facilities launched by Andhra Bank, where we are front runners. We also took the initiate in implementing ‘single window system’ in banks. Other major areas where we are leaders include deposit linked housing loan scheme and savings bank accounts with accident insurance facility and Life Insurance facility. As discussed earlier, we have also tied up with Legal and General and Bank or Baroda for our insurance foray.

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