‘Changing into a private bank is not a choice, but a compulsion', says Saraswat Co-op Bank chief

The transformation will help the bank overcome the constraints in raising capital under the co-operative framework and brace up for increased competition as the RBI has kick-started the process for issuing licences for new banks.

Mumbai, Sept. 4: 

 Converting into a private sector bank is not a choice but a compulsion for Saraswat Co-operative Bank, India's largest urban co-operative bank, according to its Chairman, Mr Eknath Keshav Thakur.

The transformation into a private sector bank is expected to help Saraswat Bank overcome the constraints in raising capital under the co-operative framework and brace up for increased competition as the RBI has kick-started the process for issuing licences for new banks in the private sector.

Though the bank is aiming to achieve business (deposits plus advances) levels of Rs 50,000 crore by end-March 2016 and Rs 1 lakh crore by end-March 2021 from the current level of around Rs 29,000 crore, future growth will be hamstrung by

limited capital raising avenues.

Unlike commercial banks, which can augment their capital through equity markets, Saraswat Bank's ability to raise capital is restricted to tapping the Members (1,62,560 as on March-end 2011) by selling shares at face value, ploughing back profits, or issuing long-term subordinated deposits.

Currently, the bank has a capital of Rs 1,400 crore and advances of around Rs 12,000 crore. So, even at a capital-to-risk-weighted-assets ratio of 10 per cent, it has headroom to lend just Rs 2,000 crore more.

“Changing into a private sector bank, therefore, is not a choice but a compulsion because there is no headroom in capital. If our capital adequacy ratio (CAR) goes below 9 or 10 per cent then the RBI will not allow us to do business,” said Mr Thakur in an interview with Business Line.

 Emphasising that garnering deposits is not a problem for the 93-year-old bank, Mr Thakur underscored the dilemma that his bank could face in deploying resources if adequate capital support is not available.

“Our bank has enjoyed customers' trust over the last nine decades. So, garnering deposits is not a problem. But the problem with deposits is that we have to maintain Statutory Liquidity Ratio and Cash Reserve Ratio, pay interest and deploy them immediately. So, there is compulsion to lend. But how can we lend if we don't have headroom in capital?” he said.

Confident of shareholders' support

The bank has already initiated a consensus-building exercise within the organisation for converting into a private sector bank.

“We have already set in motion discussions with employees' union and officers' union. We are also confident of getting shareholders' support (for the conversion into a private sector bank). The only issue is the modus operandi,” said Mr Thakur.

Professional bankers on the board

 Two decades back, the bank had a three-member loans committee which sanctioned loans up to Rs 25 lakh. Today, the ticket size of a single loan, be it to a firm or a company, is Rs 200 crore.

This single company loan limit is expected to go up in another two months to Rs 250 crore. For a group, the loan limit is currently Rs 500 crore.

“So, see the change in the loan ticket size from Rs 25 lakh to Rs 500 crore in 20 years. Our average corporate loan size is about Rs 50 crore. We are part all major lenders' consortium.

“We have been known for conservative banking in earlier times. Naturally, when a large loan proposal comes, it is a shocker for the old guard. They are a bit apprehensive. 

“In a growing bank, risks have to be taken, they have to assessed, they have to be managed, and they have to be mitigated.

“There can't be any banking without risks. It all depends on how we assess the risks, how we decide whether to accept/not to accept the risks, mitigate and manage the risks,” said Mr Thakur.

 To guide the bank in dealing with large corporate loan proposals, the bank has inducted three top retired bankers — Mr A. G. Joshi, former Chairman and Managing Director of Dena Bank, Mr P. N. Joshi, former Chairman and CEO, erstwhile United Western Bank and Mr K. L. Jagdish Pai, former Executive Director, Canara Bank.