'We are confident the IPO will be oversubscribed many times'

Vijaya Bank Chairman and Managing Director Sampathkumar Gopalakrishnan is a professional banker with more than three decades of experience in operations, administration and policy formulation. His special areas of interest include international banking.

A qualified chartered accountant, he joined the Bank of Baroda in 1969 and rose to the position of general manager. He was appointed as executive director of the Bank of India in 1998. He was a member of the committee on management of foreign currency exposure related risk of public sector enterprises and the working group on accounting standards. He had stints as director of the Bank of Baroda (Uganda) Limited and the Bank of Baroda (Kenya), chairman of the Bank of India Finance Limited and alternate director of IBU, Hong Kong.

He took over as Vijaya Bank's CMD in May 2000. The bank has been logging impressive results of late. Its total business in 1999-2000 has risen to Rs 167.76 billion from Rs 139.33 billion the previous fiscal.

The bank is gearing up to tap the capital market with an initial public offering for Rs 1 billion in September. Vijaya Bank will be the first nationalised bank to divest in the current financial year.

As a result of 27 per cent dilution of the equity to the public, the government's holding in the bank will be reduced to 73 per cent.

In an interview over e-mail/fax with Associate Editor Y Siva Sankar, Gopalakrishnan explained the public sector bank's future plans.

There is a general view that all public sector banks should be privatised. Vijaya Bank's deposits, net profit, advances, foreign exchange business, credit card business, business per employee and number of branches have risen sharply in recent times. How did a government-owned organisation like Vijaya Bank achieve this?

The improvements in Vijaya Bank's business levels and profit position in recent times is mainly on account of the bank opening several specialised branches as well as giving greater thrust to computerisation, recovery of non-performing assets, retail lending and mobilising low-cost savings bank/current deposits.

The opening of fully computerised capital market service branches in metros enabled the bank to mobilise sizeable interest-free current deposits. The introduction of several retail lending schemes, opening of specialised industrial finance branches have helped the bank to increase its total credit by over 20 per cent each during the past three years. The number of computerised branches stood at 253 in March 2000, whereas it was only 27 in March 1993. All these factors helped the bank to perform better in recent times.

You have said the issue of equity to public will help Vijaya Bank to raise credit limits for 'good clientele'. Could you elaborate?

As per the Reserve Bank of India norms, a bank can lend a maximum of 20 per cent of its capital plus free reserves to an individual, whereas it can lend up to a maximum of 50 per cent of its capital plus free reserves to a borrower group.

Accordingly, presently Vijaya Bank can lend up to Rs 638.9 million to an individual borrower and up to Rs 1.597 billion to a borrower group. The issue of equity to the public through an initial public offering amounting to Rs 1 billion will increase the above limits to Rs 838.9 million and Rs 2.097 billion. Thus the issue of equity to public will help the bank to raise its credit limits for good clientele.

Vijaya Bank has written off accumulated losses of Rs 2.97 billion, shrinking its equity capital from Rs 5.563 billion to Rs 2.592 billion. How would you explain this writing off of losses to the public at large when you seek to raise money from the market? Don't you think they may hold these losses against Vijaya Bank's performance?

The accumulated losses are mainly due to the bank providing fully for non-performing assets as per the prudential norms and guidelines of the Reserve Bank of India. However, since 1996-1997, the bank has been making profit and as such it has reduced its accumulated losses. Since the bank has now made full provision towards its NPAs, we are confident that the bank will improve its net profit as done in the past four years. This would improve the confidence of the investors.

Could you elaborate on Vijaya Bank's 'three-pronged strategy' to bring down the NPAs to 5 per cent during the current financial year?

Vijaya Bank's three-pronged strategy to bring down the NPAs to 5 per cent during the current year includes:

• Emphasis on upgradation of NPAs through recovery of interest/instalment.
• Negotiated settlement by considering compromise proposals.
• Bringing pressure on defaulters through legal remedies available, viz, filing suits in courts/debt recovery tribunals.

What are the compromise deals with defaulters you have in mind?

Recently, the Reserve Bank of India has come out with guidelines in the matter of recovery of NPAs in respect of amounts of Rs 50 million and above and less than Rs 50 million, which are non-discretionary and non-discriminatory, to be uniformly implemented by all public sector banks.

Wide publicity is being given to this scheme by the banks as well as the RBI. We are also bringing this to the notice of our defaulters. We hope the bank will recover sizeable amounts from defaulters from this approach.

What kind of response are you expecting from the market to Vijaya Bank's IPO, given the fact that the air is thick with talk of divestment and general criticism that public sector banks are poor performers? How do you plan to overcome this?

We are confident the Vijaya Bank's IPO will be oversubscribed many times. The bank has a larger clientele base. The balance sheet of the bank has become absolutely clean, transparent and as such we are hopeful that they will subscribe to the bank's IPO wholeheartedly.

What stock exchanges are you eyeing to get Vijaya Bank's shares listed?

To start with, we intend to get Vijaya Bank's shares listed at the Bombay Stock Exchanges, the Bangalore Stock Exchange, and the National Stock Exchange.

Why is it that Vijaya Bank is going in for an IPO at par? What are the factors that prompted you to steer clear of a premium issue?

The share prices of many nationalised banks are now quoted at par value only, even though these banks' financial position is strong enough for their share prices to be quoted at a much higher level. So, considering the market scenario, we have decided to go in for an IPO at par.

How would you use the money raised through the IPO?

The money raised through the IPO will be deployed in credit expansion as well as in computerisation of more number of branches.

What are the New Millennium plans of Vijaya Bank?

Vijaya Bank has drawn up the corporate plan for the next five years. The main motto of this plan is to improve the bank's profitability substantially through qualitative improvements in various performance areas, specially laying greater emphasis on computerisation, recovery of NPAs, improving business levels, etc.

What have been your initiatives to orient Vijaya Bank to the e-economy?

Our bank has already started I-Net for internal connectivity of our controlling offices and major computerised branches. We will introduce Internet banking in a phased manner and it will be fully operational in two years time. NIIT has already worked out the details. The bank will commence the work on the first phase shortly and we expect that the entire three-phase programme would be completed by March 31, 2002.

According to you, what could be the ideal time for Vijaya Bank to raise its Tier-II capital? (Tier-II capital = secondary bank capital consisting of undisclosed reserves, evaluation reserves, general provisions and general loan loss reserves. Certain hybrid debt/equity instruments and subordinated term debt may be included in the computation of Tier II capital.)

We have no plans to raise Tier-II capital during the year 2000-01 as we will be raising Tier-I capital through the IPO.

From a 100 per cent owned government company, Vijaya Bank would become a public company after the IPO. What measures is Vijaya Bank taking to make the transition? Are you conducting any training and reorientation programmes for your staff to become more accountable?

We are aware of the additional responsibilities that the bank has to shoulder on account of the IPO. Appropriate steps will be taken to acquaint the staff to changing environment, through training models in our training colleges and also conferences that will be held from time to time.

What does Vijaya Bank's proposed IPO signify for the public sector banks at large?

Vijaya Bank's proposed IPO signifies that the public sector banks in India will have to be ready to perform, keeping in tune with the changes in the new millennium.

We have plans to progressively increase the dividend rate through increased efficiency, productivity and profitability so that the owners/subscribers to our IPO issue will definitely benefit in the long run.

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