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With IPO in sight, Catholic Syrian Bank tries to revamp

Thrissur-based Catholic Syrian Bank is gearing up to shed its leisurely, localised and old-generation profile, to catch up with peers ahead of its maiden public offering, scheduled by the end of the year. It is one of the country’s few commercial banks yet to be listed on the stock exchanges.

Following the investment from Yusuffali M A, chief of the Dubai-based LuLu Group, who took 4.99 per cent stake early last year, a new team was installed. It is headed by Rakesh Bhatia, who came from Hong Kong & Sanghai Banking Corporation. Bhatia, in the past few months, has set up a team of senior bankers from foreign lenders such as HSBC and Royal Bank of Scotland (RBS). “That was my first priority,” he said in an interaction with Business Standard.

Bhatia is also cautious, given the controversy surrounding another Thrissur-based lender, Dhanlaxmi Bank, which tried to transform at a rapid place, still afresh in public memory. “Unlike Dhanlaxmi, I did not want to come in with a big team and start slashing jobs or make changes like shifting office to Mumbai and such similar things. I was very cautious and aware that we have to do it in a very calibrated way,” said Bhatia.

Dhanlaxmi is held to have moved far too aggressively in a short duration; it was then faced with not only weak financials but an unhappy board of directors and staff union. Between March 2009 and September 2011, the return on assets fell to 0.23 per cent from 1.21 per cent; the capital adequacy ratio dropped to 10.81 per cent from 14.44 per cent.

Bhatia will have to improve CSB’s financial parameters significantly to draw investor attraction for the Rs 300-crore initial public offering. First on his list is to improve the performance of the branches, most of which are not making a profit. For this, he is banking on Bharath Mani, who came from RBS and now heads the retail operations at CSB.

Mani’s responsibility is not only to improve the branch performance and expand business in other states but to take a re-look at the branding. “Our branches are more of administrative centres than business growth centres. The immediate priority is to take out the administrative work and centralise it, so that branches become centres for growth,” Mani said.

The management, added Mani, was looking at changing the look and feel of the bank. “The first step is to take a brand identity and then progress from there. The plan is also to create 12­14 model branches in the next one year,” he said.

To expand the business, Catholic Syrian also plans to strengthen its position in the four key states it operates in — Kerala, Karnataka, Tami Nadu and Maharashtra.

Mani was a key member of RBS who oversaw the transaction with another old-generation lender, the Kohlapur-based Ratnakar Bank (now RBL Bank), when the latter acquired the retail business from the foreign lender.

<B>Operational issues</B><BR>
A positive aspect is the margins. The net interest margin for the bank was 2.75 per cent for the first nine months of FY14, though the cost of funds was nine per cent. The loan book is Rs 9,000 crore. The bank will aim for more current and savings account deposits (Casa), by opening more branches. At present, the bank’s Casa is 19 per cent of total deposits.

Growing of revenues will also help the bank reduce its cost. “We have to address the cost to income ratio from a revenue perspective and we are focusing on growing other interest income,” said Bhatia.

The bank has 300 people set to retire in the next two years and this is going to bring down the employee cost.

Apart from Mani, another key member is Anand Krishnamurthy, earlier a Bhatia colleague at HSBC, who heads the wholesale banking and treasury business.

A key strategy for the lender is to tap the non-resident Indian (NRI) business on Kerala. The state gets $ 26 billion (Rs 1.53 lakh crore) a year in remittances.

The NRI business for CSB grew 45 per cent last year, when deposit growth was 12 per cent.

Also on the agenda is to clean its balance sheet before the IPO. Bhatia says he’s been de-risking the business to ensure bad loans don’t grow.

“Our non-performing assets were Rs 300 crore at end-March. It had shot up to Rs 420 crore in the middle of last year and we have successfully managed to bring it down. I want to reduce it by another Rs 40-50 crore in the next two-three months and keep reducing it. Last year, we also reduced gold (holdings) a lot, as there was a lot of volatility. We also declined over Rs 1,000-crore deals, as the idea is to grow cautiously,” he said.

MD’s mantra: Put your money where your mouth is
Rakesh Bhatia, a banker who was with HSBC for close to three decades, wanted to make a point when he was offered the post of managing director and chief executive officer at Catholic Syrian Bank (CSB).

Bhatia, who was approached by a head-hunting firm, wanted to convey the message to all stakeholders of the Thrissur-based lender that he had a stake in the bank’s future, literally, and put his entire savings, including his pension, to pick a one per cent stake for about Rs 8 crore.

“The main reason for putting my own money was to show that I am serious about it. I did not want people to think that some mercenary from some foreign bank is coming here and making money to go away,” Bhatai said.

Even LuLu group chief (Yusuffali MA) says I am also a stakeholder and just not a chief executive,” he recollects. Dubai-based LuLu acquired a 4.99 per cent stake in the bank last year.

The controversy surrounding Dhanlaxmi Bank, when it got a new chief executive with a new team, was on the back of his mind as he read and researched extensively on the developments before taking up the present assignment. Aware of the presence of trade unions in the Left bastion where the bank is based, he also made conscious efforts to reach out to the unions to know their point of view.

The other area is the Church, which is said to have a significant say on the bank’s affairs. Bhatia, who also interacted with them, however, denied the church interferes with the operations of the bank in any way. “Before coming in, I had done a lot of research on the bank and had also read about the potential involvement of the church in the bank. But after joining, I have discovered in the last one year that there is no interference from the Church or from anywhere else of any kind,” he said.

NUPUR ANAND

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