LVB's sustained growth

Established at Karur on November 3, 1926, The Lakshmi Vilas Bank has completed 75 years of service and a function was organised at Karur on November 19 to mark the occasion. From a modest beginning in the then small village of Karur, today the bank has grown in strength with business nearing Rs. 4,000 crores. In its journey over the last seven and a half decades, it has charted for itself a steady and sustained growth path, says Mr. K. R. Shenoy, Chairman, Lakshmi Vilas Bank, in an interview to The Hindu.

QUESTION: The Bank Rate has been reduced to 6.5 per cent, lowest since 1973, and CRR being slashed by two per cent. In this scenario, how banks especially private sector banks should perform? Many banks are worried about the erosion of profitability if there had to be a cut in lending rates, as credit offtake has been disappointing. In this scenario, is it necessary to deploy surplus resources in Government Securities?

ANSWER: The cut in CRR has come at a time of ample liquidity increasing further the deployment pressures on banks. Though the banks can enjoy optimum benefit of additional liquidity with the credit offtake, till such time, the surplus funds will be deployed in the treasury operations and this will improve the profitability subject to market risk as would prevail on March 31, 2002. This will be the experience of most of the banks.

Many banks are not in a hurry to reduce PLR along with lending rates applicable to several categories. What is the reason?.

As per the RBI guidelines, any change in the interest rates on deposits will be applicable only to fresh/renewed deposits from the date of giving effect to such change. The existing deposits have to be serviced only at the originally contracted interest rates. However, in the case of advances, any change in the bank's PLR will have to be given effect across the board to all the advances contracted at PLR linked rates. This means that any reduction in PLR will have an immediate reduction in the income of the banks. In such situations, in order to maintain their income margin, banks have two options - either to increase the volume of advances along with a reduction in the interest rate or, if the volume of advances does not increase as expected, to keep the interest rate at the same level so as to ensure that at least there is no reduction in the existing income.

Perhaps, banks have chosen the second option rightly. It is interesting to note that now most of the banks have reduced the interest rates on deposits without a simultaneous reduction in their lending rates, (which they used to do), since they are now unable to deploy the funds so mobilised in high-yielding loans / advances. As such, it can be said that banks are adopting a wait and watch strategy as of now.

What is the impact of cheaper money policy?

The cheaper money policy has ensured ample liquidity in the system with stable and relatively low interest rates in the economy.

What is the extent of computerisation of your bank?

Our bank has developed an in-house software with N-Tier Architecture, christened `Lakshmi Banking Solutions - LBS 2001' in association with the internationally-renowned software provider, Mascon Global. The branches are upgraded with this new software in a phased manner, which would facilitate provision of value-added services and pave way for future plans like `net banking, any branch banking and the like'.

Has the workforce become surplus?

It has been our constant endeavour to ensure optimum level of staff strength at all levels. As a corollary to this, the bank has taken adequate steps to ensure that available staff strength is deployed to derive optimum utilisation. The recruitment and the re-deployment of manpower are strategically planned taking into account the bank's growth for enhancing the operational efficiency.

What is the average cost of deposits?

The average cost of deposits is at 8.6 per cent. With the phasing out of high cost deposits accepted five years ago and the mobilisation of low-cost deposits, the bank is expecting the cost to go down further.

What is the level of NPA?

The percentage of gross NPA of the bank as on March 31, was 9.61 per cent of our gross advances. On the same date the percentage of net NPA of the bank stood at 6.47 per cent of net advances.

Have you been able to make profit on sale of securities continuously?

Yes. The bank has made sizable profit in trading in government securities so far in this year. It has set up a separate funds and investment cell in Mumbai, for active dealings in securities. The average yield on investments in the first half of this year works out to around 12 per cent. (inclusive of dealing profit).

Do you shuffle portfolio?

This is done on the basis of periodical review of residual maturity pattern. The securities held under `Held for Trading Category' are maintained more or less in consonance with the emerging market movements.

What is the capital adequacy ratio?

The capital adequacy ratio as on March 31, 2001 was 10.21 per cent.

Have you any plans for different types of banking?

Thrust is given on fee-based income such as electronic funds transfer, cash management services. The bank proposes to enter into credit cards and ATM's. Specific attention is paid for housing finance which is presently managed well departmentally with no plans for engaging in housing finance separately through a subsidiary.

Can you throw more light on the bancassurance tie-up with Dabur CGU. What will be the area of focus of insurance products?

In the initial phase, around 30 branches in Tamil Nadu and Andhra Pradesh are identified for marketing of Dabur CGU's products on corporate agency arrangement. In the second phase, it is proposed to extend the coverage to more branches and to neighbouring States.

The finalisation of business plan is at an advanced stage. The bank proposes to focus on creditor policies and SHG's particularly in urban and semi-urban areas. The modalities of operations will be finalised once the corporate agency guidelines are issued by IRDA.

What are your future plans?

The bank's future plans include integrating the domestic and forex treasury operations for better risk management, marketing of insurance products of Dabur CGU (subject to RBI/IRDA approval, inter linking of branches to enable provision of anywhere / ATM services and opening of 50 branches in the next three years.

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