DCB is definitely not for sale: Murli Natrajan, MD & CEO, Development Credit Bank

When 47-year-old Murli Natrajan took over as managing director and chief executive officer of Development Credit Bank (DCB) in the first week of May, many thought he didn’t know what he was getting into. But Natrajan, whose first business was a printing press as a teenager, says a meeting with the bank’s board convinced him that this was the place for him. With 25 years of experience in banking, most recently as the head of global SME business at Standard Chartered, Natrajan, arguably the youngest bank CEO in India, told DNA in an interview on May 25 that he is ready for the challenge.

Everyone wants to know why you chose to come to DCB?
(Laughs) What do you want me to say….I have been working with global companies for the past 25 years. I have travelled to several countries and learnt a lot. I felt this (working with DCB) was a good opportunity for me to make full use of all my knowledge, capabilities and skills. When I met the board I felt I will get its support and that of the promoters to take the bank to the next level.

You mentioned DCB is a good bank. What is good here, because the positives have not exactly been in focus recently…
Sometimes the challenges we are facing overshadow… Remember, the bank has been there for 77 years, we have loyal customers in retail, corporate and SME. We have 80 branches in 10 states and 2 union territories. I quite like the professional set of people here, who have a rich experience. In the last 4-5 years, the bank has got into challenging situations twice, but fundamentally, there are a lot of factors that we can work with to take the bank to the next level.

What is the prize for you…will you be satisfied with just turning the bank around?
I think the first task is to stabilise and turn the bank around. I expect we will get much better in 6-12 months. The next phase will be to start growing in the right areas. That doesn’t mean that we won’t grow in the next 12 months… some part of the balance sheet will shrink and other parts will grow. Once we are able to stabilise the balance sheet and get the confidence of stakeholders, we can increase the speed of growth in the next three years.

What will your priorities be?
The first priority would be to make the bank efficient; I think our cost-income ratio is a big challenge. We are looking at various types of costs and their productivity and are trying to restack the costs at the right areas. We are cutting unnecessary costs and using the funds in areas like SME, branch banking, corporate banking. It will be a journey, a roadmap of 1-2 years.

Secondly, because there has been no CEO for almost 6 months, the engines have become cold. We need to put retail, SME and corporate on a how-we-grow mode. We have a lot of branches in Maharashtra and Gujarat and want expand more in the region. SME banking is another focus area.

What are the problem areas you have identified?
The problem areas are two-fold – one, the cost-income ratio which I have told you about and second, the high ratio of unsecured loans. When we increased retail lending, on hindsight we should have had more secured retail lending like home loans and loans against fixed deposits. But then the market looked attractive for personal loans, so the bank expanded there. Later, when the downturn started somewhere in September, many customers were unable to service their loans and NPAs went up. So much so that personal loans account for more than half of our NPAs.

Do you think the SME business is an area which is more stressed?
I have looked at SMEs in Hong Kong, Singapore, Malaysia, Thailand, and also in India. Definitely the downturn has impacted everybody, but SMEs that were more exposed to the US or Europe and were export-oriented were hit more. In most situations, some industry or the other always does well. For example, while the domestic gems & jewellery industry was impacted in the recent recession, the textiles industry was hit more.

But do we know of all the problems at DCB or could there still be some unknown unknowns?
(Laughs) From whatever I have been able to observe and analyse in the last 30 days or so, I would say that the biggest problem we have is of unsecured personal lending and we have taken actions on that over the last few months. We hope losses will start reducing in about six months.

Given that you gave deposits at high rates and Casa share is actually coming down, how are your margins shaping up?
Our Casa balances are stable but there was a liquidity challenge in September and we shifted from Casa to term deposits. Over the last six months, we have worked towards taking more retail deposits and giving up the larger, price-sensitive bulk deposits. We have seen encouraging signs in the last three months. Our Casa is about 28%. I am happy and we will do more.

But how are margins shaping?
Personal loans come at high margins, but they have the challenge of NPAs. So, as the personal loan book comes down, you would see our margins falling. But am I unhappy about it? Not really, because if margins are falling because of fewer personal loans, we know the reasons… It is slightly less than 3% as on December.

What is the capital position?
As on December 2008 our capital adequacy ratio was at 14% — almost 13% in Tier-I and the balance in Tier II. Even as of March, we expect the capital position to be meeting RBI standards, so capital wise I don’t think we have a challenge. However, we have growth high on the agenda, for which we would be looking for some more capital this year.

But what are your options (for capital raising)?
The options could be Tier-II — we have a lot of headroom. The other option could be a rights issue. We have a lot of support from the promoters, so that is not a problem.

Banks generally have become less ambitious on credit growth this year… What are your plans?
I have been in banking since 1984 and have never seen the kind of situation that developed in June last year and peaked with the collapse Lehman Brothers in September. It is quite understandable that you want to be cautious, but too much liquidity impacts P&L (profit and loss account).

There will always be money for good ideas… Because of our own situation as well as the market, we would like to proceed very cautiously in the next 6-12 months. We are looking for opportunities in retail, SMEs and corporates. Once we get our situation in control, we will accelerate growth.

Any sectors which you are avoiding?
In all cases, I look at promoter, business propositions and track record…

Is it right that the Reserve Bank has frozen your branch plans?
I am not aware of any freezing or anything, but, yes, I think the last set of branches we got was in November 2007 — seven branches. I think the RBI will start giving us more licenses as we improve our performance. We have put another application for 50 branches last year…

Will you close down some branches to rationalise costs?
There are no plans to close down any branches. The rationalisation will be more on re-directing people, looking at administrative costs, premises cost…looking at opportunities to improve things like telephone processing costs and so on.

Is staff cost the largest component of total costs?
If you look at income-to-staff costs, it looks like a challenge.

So how are you handling it? Do you plan any layoffs?
Some of the excess capacity has been dealt with in personal loans six months ago, so our staff costs should be lower than what it was. The other thing is, if we identify our areas of growth and redirect our resources towards those areas, I don’t think we need to lay off people at the moment.

DCB is the prime target for acquisitions. Are you willing to be acquired?
DCB is definitely not for sale. My understanding from the promoters is that they have been in the country for 77 years and they want to grow the bank sensibly and cautiously and I will stick with that.