SME WORLD Bureau
From a humble position of a clerk in Canara Bank, Rajendra Kumar Gupta rose to the coveted position as the Executive Director, Bank of Maharashtra; the story of Gupta is the story of determination and dedication, of passion and compassion, of conviction and confidence. “I developed a learning instinct from the day I set my foot in the professional world and I knew that only relentless efforts will make me realise my dreams,” Gupta sums up his progress.
Coming from a conservative middle class family from Uttar Pradesh, Gupta's father worked in a textile company and faced the gigantic task of rearing his six siblings, all sons. Happily, the legacy he handed down to all his children paid off and all his sons became bankers holding positions of pride.
He did his schooling and Bachelors in Science (Physics) from Delhi and went on to acquire a Masters Degree in Science (Physics) from the University of Delhi. His professional qualifications include LLB, CAIIB & Diploma in Banking. He took over as Executive Director of the Bank of Maharashtra on 31st December 2013. Prior to joining the Bank, he was associated with Dena Bank (from May 1983 to December 2013) where he was working as General Manager in Mumbai heading various verticals like credit, retail, MSME and Priority Sector. Gupta worked as Regional Head in Pune, Surat and Delhi. He also had a stint with Canara Bank, from February 1980 to May 1983.
His wife works for Power Grid Corporation in New Delhi. They have a daughter, who did her schooling from Mumbai and Delhi and Masters from Birla Institute of Management Technology and is now employed with a multinational company in Gurgaon.
SME WORLD's Sandeep Bisht in conversation with him in his office in Pune.
With the AQR and the increased NPAs in most of the Large Corporates, perhaps the preferred lending area now is MSMEs. What is the strategy of your Bank in this regards.
Our present contribution of MSME advances to total advances is 22 % & Advances to Corporates is 48 %, which we intend to reduce by 5%.Hence we have decided to increase Retail, Agri. & MSME (RAM). For that purpose we have initiated following steps--
We have revisited the special schemes offered by our Bank for MSMEs and revised the Pricing to suit the present market requirements. Cluster based approach for tapping the units in the cluster.
We have 38 specialized MSME branches in different clusters across the country to cater the needs of MSMEs. Special focus is given to these branches to cater the requirements of MSMEs in their clusters.
To encourage finance under CGTMSE sheme.
Tie ups with leading Industry Associations like ASSOCHAM for sourcing the MSME proposals through their online portal myloanassocham.com.
Focus on MSME loan ticket size of Rs.0.25 crore to Rs.1.00 crore
Fulfilling the requirements of existing clients and getting new leads from them.
Bank has tie ups with two credit intermediaries namely BYST & DeAsra Foundation for handholding & mentoring services.
What are special schemes of your Bank for MSME sector?
The schemes we offer are:
Scheme for Financing Trades, Services & MSE (LAP)
Scheme for Financing Small Road Transport Operators
MSME Credit+ to meet the urgent requirements of MSMEs
Financial Assistance to Service Sector (FASS)
Mahabank Professional Loan Scheme for Financing Doctors, Chartered Accountants, Engineers & Architects.
Maha MSME Machinery / Equipment Loan Scheme
Maha MSE Collateral Free Term Loan facility
Maha MSME Collateral Free Cash Credit facility
Are you offering any concessions in the rate of interest as well as Processing Fee and other service charges to MSMEs
Yes. We have taken the following initiatives.
Our Bank has waived 100% processing fee on credit facilities to MSEs upto Rs.5 lakh.
Concessions in ROI and Processing Charges on credit to MSE above Rs.5.00 lakh are considered on case to case basis.
Concessions are considered in applicable ROI based on collateral coverage.
It has been difficult for MSMEs to get the Investable Grade Bank Loan external rating by most of the MSMEs. What is the solution to this, so that they may be able to get the required finance at reasonable rates?
It is true that it is difficult for MSME to get higher external rating but that is not the limiting factor for financing to MSME Sector. We have separate ROI structure for MSME borrowers as compared to corporate borrowers. The applicable ROI is competitive and in addition concessions are considered in applicable ROI based on collateral coverage.
What is the use of SME rating vis-à-vis Bank Loan Rating for SME units?
SME Rating indicates the SME's performance capability and financial strength. SME Ratings are entity-specific ratings, unlike credit ratings, which are debt-obligation-specific. It reflects the level of creditworthiness of the SME, adjudged in relation to other SMEs.
Whereas, the bank loan rating indicates the degree of risk regarding timely payment of the bank facility being rated; the facility includes principal and interest.
Further, if an account is having rating from external credit rating agency, Banks will get benefit of provisioning.
Which are the sectors whom you think will be good investment in near future.
Sectors related to SMEs, Retail with specific thrust on Residential Housing and Vehicles shows signs of revival and may turn out to be sunrise sector in these times and near future.
Which sectors are in most stress, which are the main source for the increased NPAs in banking industry? Reasons for Slippages:
It is a cumulative and compounding effect of subdued economy or stress seen in some major sectors during last two years experienced through rising NPAs in the Banking Industry.
a. Subdued economy impacted the large industries sector adversely, which further impacted ancillaries, service sector and MSME sector also. Stranded projects in infrastructure, mainly road projects, affected advances under the segment. Sectors viz. Steel, Infrastructure (Roads), Engineering remained under stress. Following table will show the position of rising NPAs in these sectors
b. During last few years till 2014-15, corporate borrowers preferred to get their accounts restructured under Corporate Debt Restructuring (CDR) so that they could maintain their rating. During the process of restructuring; certain borrowers failed to maintain their IRAC status. As a result and due to their inability to maintain IRAC status on “Reference Date” to CDR these accounts were not upgraded in spite of restructuring.
c. Agriculture sector remained in stress due to unfavorable monsoon and natural calamities resulting in rise in NPAs.
d. Developmental measures in the economy are yet to reflect positive impact on banking more particularly for containing fresh NPAs.
e. Eventually recovery was affected & and trend of higher slippages / NPAs is continued due to above.
There is a public opinion that even though there will a short term pain in demonetization, we can expect long term gain. What are your opinions on Demonetization?
The demonetization has been evaluated in the context of its short-term costs and long term gains. Short term losses include loss of welfare for the low-income people and decline in GDP growth. On the long-term gain side, a large number of benefits are identified which will appear with time. Spread of cashless transaction culture, growth of the formal economy, registration of new income tax payers, linking or accounting physical asset investment to PAN, cleansing of the real estate sector, conscience about avoiding black income transactions, etc., are supposed to be the major long term gain. All of these necessitates additional or supportive policy measures by the government as well.
Banks are flushed with short term funds. What strategies you are planning to adopt to put these funds to use when market sentiments for new investments/new projects are not forthcoming?
Yes, banks are flushed with surplus funds post demonetization. However, there will be outflow of a part of the funds influx happened due to demonetization post removal of restriction on withdrawal of cash from saving accounts. Even though high growth in low cost CASA deposits in Q3 has reduced cost of funds and the same is being passed on to customers in the form of reduction in lending rates (MCLR) by 70 bps since Apr 2016. there is very little traction in credit growth. Considering low credit demand, Bank is deploying surplus funds in various money market instruments so as to earn optimum return and liquidate the same whenever there is demand for credit.
What are the strategies Bank is adopting to match their capital to use the funds received due to demonetization. Are you planning any IPO also?
Credit growth is muted for last about two years. Even before the demonetization there was hardly any real shortage of funds to meet credit demand. In such a scenario, almost the entire surplus funds received due to demonetization are invested in short term money market instruments. As a result there is not any additional requirement of capital at this point of time owing to surplus funds. Further as there is subdued credit growth, present capital is sufficient for existing level of advances. In order to have a healthy CRAR we have already raised Rs.500 crore AT1 and Rs.500 crore Tier 2 capital in the current fiscal. That will take care of our capital requirement for the current fiscal
PSU Banks have to depend on GOI for capital infusion. What are the avenues available to PSU Banks, in the present economic scenario, to raise capital if GOI is not able to provide adequate capital to expand credit growth and for meeting evet increasing provisions. Whether PSU banks are in a “Catch 22” situation? (No capital no credit growth no increase in interest income)
Considering the present NPA position and pressure on profitability, public sector banks are mostly dependent on GOI for further equity capital needs. However, once economic conditions improve there will be good recovery of NPAs resulting in improved margins. Fresh slippages are also progressively coming down each quarter. Lower provisioning requirements with write back of existing provisions will result in higher profit and good valuations. At an opportune time banks may raise equity capital from market by way of FPO/QIP/Rights etc. Present capital with PSBs are adequate to meet credit demand. Moreover, GoI has assured PSBs to infuse adequate capital so that funding of projects do not get stalled due to want of capital. Even if there is a situation of lower capital infusion from the Government, banks may raise capital from market at an opportune time.
Government has increased the threshold limit of CGTMSE from 100 lakh to 200 lakh. What are your opinions on the same? How many cases and amount have your bank sanctioned under CGTMSE during the current year and what are the future plans.
It's an appreciable move by the Government to ensure credit flow to eligible MSMEs who do not have collaterals to offer / have constraints in offering adequate collateral security.
Our Bank has considered 4346 cases amounting to Rs.203.79 crore under CGTMSE during the CFY.
What initiative your bank is taking towards DIGITAL INDIA. What incentives are you giving to your clients to move them towards Digital India?
Our Bank has implemented various digital initiatives viz., Debit Cards, Internet Banking (MahaSecure), Mobile Banking (MahaMobile), IMPS, AEPS, UPI(MahaUPI) etc.
Salient features of the Bank's ATM Card:
Mahabank Visa Debit Card gives its customers the freedom to access their savings at any Visa accredited Merchant Establishment or ATM.
This card allows them to purchase foods at retail outlets and withdraw cash from ATMs in India and abroad.
Direct online debit to your savings account.
Round the clock cash withdrawal facility upto Rs.20000/-
Nil joining fee
Completely safe and secure.
Incentives given to Bank of Maharashtra's customers to move them towards Digital India:
Internet Banking and Mobile Banking are the services provided FREE of cost to the customers.
Bank of Maharashtra has presented Maha Amulya Rewardz, a loyalty programme for all valued customers. Now Amulya Points can be earned by the customer every time he/she uses Net Banking or swipes his Bank of Maharashtra Debit Card for any purchases, payments and bookings. Amulya points accumulated on BoM debit card can be redeemed to make payments.
Bank of Maharashtra Credit Card Reward points Programme overview:
Bank of Maharashtra offers two credit cards in partnership with State Bank of India. These are Bank of Maharashtra SBI Platinum Credit Card and Bank of Maharashtra SBI Credit Card. The cards are designed to offer maximum benefits to the cardholders. For example Bank of Maharashtra SBI Credit card holders get 2.5% value back when they earn 10x reward points on their spends. All the cards offered by Bank of Maharashtra are eligible for the Shop and Smile Rewards Programme of State Bank of India. As per this programme, cardholders earn points on every Rs.100/- they spend using their credit cards. They can then redeem these points to get rewards of their choice from the Rewards Catalogue
Bank of Maharashtra RuPay Debit Card – Added Benefits
Personal Accident Cover
Access of e-lounge at major airports
Delayed payments from large corporates is the major problem which MSMEs are facing. What are your opinions in this regard? RBI has introduced Trade Receivable Discounting Systems (TReDS) to convert trade receivables into liquid funds. What is the success of TReDS?
Yes most of the MSMEs are get beating due to delay in realization of receivables from corporates.
Most of the Banks offer bill discounting facility for such MSMEs. The products like Vendor Financing is an alternative for MSMEs who supply to large corporates.
It would be important that use of TReDS is made mandatory for to begin with corporate & PSU. It can be purposeful only if legislative backing is extended to it, making it necessary that the invoices are uploaded mandatorily and status of deemed acceptance is granted to them to convert them into negotiable financial instrument.
Finance Minister is coming out of the policy to offer ESoPs to the employees of the Bank? What is your opinions in this regard? Whether there may be any threat for further hiding of NPAs by some of the branches to get the benefit of ESoPs.
We welcome the idea of offering ESOPs to employees of PSBs. If you compare the pay package of PSB employees with their counterparts in the private sector there is a huge gap. Besides there is no incentive linked to performance. ESOPs will not only help in narrowing the gap, when linked with performance it can boost efficiency in PSBs. I don't think ESOP will motivate branches to hide NPAs. The entire process of NPA identification is system driven and it is subject to regular inspection and audit. There is also regular monitoring from administrative offices which provide little scope for hiding NPAs.
How you encourage your staff in current situation where everybody is afraid of accountability. When any account become NPA the bankers suffers the most and perhaps the borrower suffers the least.
We encourage our staff to achieve the set targets under MSME by giving certain marks in their Annual Performance Appraisal Reports (APAR).
Bank has a policy in place to deal with the aspect of accountability. Basic aim of the policy is to take corrective steps to create a conducive environment, for better adherence to the rules and procedures. Penalizing the erring employee is a secondary step and not the main objective.
The policy takes care to differentiate the Bonafide and Malafide cases, to ensure that bonafide cases are protected.
RBI introduced S4A scheme in July 2016. Whether Bank is able to take benefit of S4A in any account in these 7 months?
Bank has till now approved implementation of S4A scheme for three borrower accounts, and able to let them retain their Asset classification as Standard. With due course of time, the quantifiable beneficial impact of scheme can be ascertained and confirmed based on scope of scheme, as had been envisaged by RBI:
Your comments on Insolvency and Bankruptcy Act? This can be strong tool in the hands of Banks to recover Bad loans. What are the planning by your Bank for the use of Insolvency & Bankruptcy Act.
a. The Insolvency and Bankruptcy Code of India, as is apparent from the object clause of the Act, has been instrumental in augmenting following objectives of Govt. of India.
Improving India's ranking in ease of doing business.
Instead of directly going in for liquidation, the Code envisages picking up of early warning signals so as to initiate quick resolution process, in respect of corporate borrowers.
b. The time limit prescribed for arriving at final conclusion as regards the resolution plan is an added advantage as compared to the erstwhile resolution mechanism that was available under SICA Act.
c. As regards individual and partnership firm, a separate mechanism for declaring borrower as bankrupt is also provided followed by the mechanism to recover the dues by sale of his assets. Thus, initiation of action under the said provisions may lead to reducing in number of independent legal actions required to be initiated for recovery of dues under the Recovery of Debts and Bankruptcy Act, 1993.
d. Under the Code, the Committee of Financial Creditors, is given due and adequate weightage for the first time in the resolution process.
We agree with the statement that The Insolvency and Bankruptcy Code of India 2016 would be strong tool in the hands of Bank to recover bad loans. However we would like to modify the statement by saying that this will not only be a tool in the hands of Banks to recover the dues but also an opportunity to the borrowers to adopt early solution process to come out of the situation and reduce their burden.
The Bank is in discussions with various agencies, insolvency professional and legal experts. The process of identification of account is already initiated and suitable course of action would be decided on the basis of merits of each case.
Your views on Merger of Banks? Whether you are also planning to merge with some other Bank?
Whether it is to fund the capex requirements of big industrial houses or infrastructure development, we need Banks which can ensure mega-fiancé; Banks which have international presence. Merger of Banks with similar synergies would enable the big Banks to provide a substitute to the ECBs and the hedging costs incurred on them. In view of the capital constraints being faced by the Public Sector Banks, Individual Banks' Board may take a view on merger keeping in mind optimum utilization of resources, better economies of scale, greater diversification and more inputs in to research and development.
At present we are concentrating on reducing our NPAs which have increased substantially in the last two years by increasing recoveries or upgrading the accounts. We are exploring all avenues to build on our core fundamentals of strong CASA ratio and increasing our profitability margins
Whether SMA/JLF/Guidelines of Non-Corporative borrower has helped bank in early detection of problems.
Yes, the guidelines are helpful in identification of stress signs of borrowers in time and it has also provided a common platform for lending entities to come together for arriving at Corrective Action Plan (CAP) in a time bound manner.
Discussions on creating Bad Banks are going on. How successful this idea will?
Bad Bank idea is being mooted as a solution to the non-strategic and toxic assets to another bank. It was basically pioneered at Mellon Bank for getting rid of its real estate portfolio, and since then is being experimented with the world over post financial crisis. Transfer of NPLs would enable Banks to conserve their scarce capital and build the investors' confidence in them. However the issue of identification of such assets, their valuation, the scale of government backing to these Banks, the legal and tax implications of the underlying assets would have to be dwelled deep into before jumping in to the bandwagon of creating Bad Bank(s). The Bad banks should be properly designed so that the purpose is achieved.
What were your expectation from Budget and whether they have been fulfilled?
The entire banking sector plagued with burgeoning NPAs were looking for some relief for huge provisioning in addition to the capital requirement. Allocation of meagre Rs.10000 crore towards recapitalization of public sector banks may not be sufficient. However, The Finance Minister has assured that more will be given, if required. Credit off take has been the slowest in last 6 decades on account of lagging private investment. Government though is doing its bit as is seen from the increased allocation to the infrastructure sector; the private sector should have been given a push up by way of some incentives for revival of the economy; albeit reduction in income tax rate for the MSME companies with annual turnover of upto Rs 50 crore to 25% from 30% will give a boost to the 'Make in India” concept. The housing portfolio of Banks would increase riding on the construction of affordable housing and target of completing 1 crore houses by 2019. Over all the budget came across as a balanced budget trying to rev up the agri and infrastructure sectors and refraining from announcement of any populist measures.
Reserve Bank has introduced Framework for Revival & Rehabilitation of stressed MSMEs under which the Committee is to be formed with an External Expert and State Government nominee at all RO/Zos. Whether your bank has already formed committees as required by RBI at all RO / ZO. What is the experience in resolving the stressed MSMEs under this framework?
Yes the Bank has formed committees in all the Zones of the Bank. In case of restructured accounts, asset classification as per the present IRAC guidelines is a major hurdle. Bank's have suggested RBI to relook in the asset classification of the borrowers considered under the scheme.
In due course of time the beneficial impact of the scheme can be ascertained.
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