Retail Loans to grow exponentially! 1.

As CMD of a premier PSU Bank of the country, what significant changes would you recommend for the banking and financial services industry in the year 2011 - 12. In India growth is much better than the emerging and developed economies while inflationary pressures are unique, coming from both demand and supply side. Fiscal measures may be required for taming the price pressures which in turn are leading to high interest rate conditions. There is a need to give a push to the fiscal consolidation by adhering to medium term fiscal responsibility plans. Creation of right enablers for flow of funds to the infrastructure sector is very important for addressing supply constraints in the economy. Banks need long-term corpus of funds. For example, banks may be allowed to raise long-term infrastructure bonds as is permissible for select category of financial institutions. Due to limited depth of our corporate debt market, banks may also be allowed to issue senior bonds with maturity lower than five years. The refinance and take-out financing through IIFCL is of lower magnitude. It should be augmented in order to address asset-liability mismatches in banks. Considering requirement of $1 trillion worth of investment over the next 5 to 7 years, fiscal policy may bring changes in the investment norms of entities with long-term liabilities, particularly for insurance, pension & provident funds. There is also a need to bring back benefits of earlier section 10(23)(g) for interest income on infrastructure lending. Secondly, there is a need to push the agenda of inclusive growth. This also means improving conditions in rural India, particularly for agriculture related infrastructure. The goal of 4 to 5 per cent growth in agriculture on a consistent basis will require incentive for creation of facilities for higher productivity, storage and marketing of produce. 2. Given the increased demand from corporates and the reduced demand for home loans, will retail loans remain important for Oriental Bank of Commerce? How big is your retail lending portfolio and are there any plans on the anvil to expand it further this fiscal? On a broader note I must say that the retail loans would continue to grow in India as its penetration level (retail loans as per cent to GDP) is still nowhere close to the characteristics of an emerging economy. As more and more people shift upward on the income pyramid, the natural progression is the need for housing, vehicles and other consumer goods. Our retail lending portfolio is Rs._______ crore (June 2011), showing year-on-year growth of over ___ per cent. It is around ___per cent of total loan book and mortgages are a significant part (___ per cent) of retail book. In FY12, we expect our retail loan book to grow at ___ per cent plus and key segments would continue to be mortgages, education and vehicle loans. There is also a vibrant marketing team for business support. 3. What changes do you propose to make retail lending more consumers oriented? On the policy side, I think there is a favorable environment for the retail lending market through tax benefits, lower risk weights and provisioning norms. There is huge unmet demand while the key driver of supply in retail segment is through banks. Commercial banks need to expand faster to emerging cities and offer customized products for various categories of customers. One important policy enabler could be streamlining land records and a national housing registry so that the incidence of frauds is checked. 4. How do you view the role of Credit bureaus like CIBIL? Does credit score help Oriental Bank of Commerce and help in taking decisions fast? Oriental Bank of Commerce is very active participant not only with the data CIBIL is developing but also with accessing the data which is used for decision making. It is a very good decision making tool and we have asked credit bureau to introduce it for rural markets, so that it becomes easier for us to take decisions for those markets also. As perceived, we are not reluctant to take decisions, but it is also true

that fingers can be pointed out at PSU banks which attract unnecessary media attention, thus leading to lot of negative impact. There is a vigilance department in all the banks, headed by an official from CVC office, hence all the guidelines are being followed. This way cases of corruption are brought to the fore, thus it is good checks and balance mechanism. You will see that on the retail side we have secured good market share and score helps us immensely. 5. In the year 2010 banks moved to a comparatively more transparent system of Base Rates. How has this shift been? The genesis of Base Rate can be traced in finding a transparent system and also an effective interest rate channel of monetary policy transmission. In my view, new system fares better than the BPLR system on both the counts. One, there is a defined formula for arriving at the base rate and no loans, with few exceptions, can be given below this rate. Experience so far suggests that the policy rate change has an indirect bearing on base rate definitions of most of the banks. Secondly, as loans are to be necessarily referred to the base rate, the pass through of a change in it for the entire loan portfolio is more effective than the previous system. This shift has been quite smooth since it became operational in July 2010. RBI has extended time up to June 2011 for banks to freeze their base rate definitions. We have currently over _____per cent of the loans linked to base rate. We also encourage the existing borrowers to migrate to the new system. However, that process has to be gradual as borrowers have the option to continue on the existing system. They have to be convinced about the benefits and it may take some time as they go through the interest rate cycle for considerable quarters. 6. As RBI gave the deadline till June2011 to shift the existing customers who were in BPLR system to the Base rate. Has it been done by OBC? Yes, now that the option is there for the customers. Moreover they get slightly better pricing if they shift to base rate. Almost _____% have shifted, since its a lengthy exercise and would take some more time. Though we have instructed to all our Branches to get over with this exercise as soon as possible. 7. Oriental Bank of Commerce's base rate was increased to 10.00% in May 2011. Do you expect further increases in the Base rate? Do you think such increases could have an impact on the existing customers in terms of increasing NPAs? Our base rate increase was in response to increase in deposit rates and consequent impact on the margins. More importantly, commercial banks should also be seen as the effective channel of monetary policy transmission. When the policy rate hikes are indicative of containing demand pressures, banks must respond through hike in deposit as well as lending rates. This is important to ensure that in future excessive demand pressures do not disrupt the growth momentum. I think further base rate hike may not be there during the remaining part of the current fiscal, assuming an improving liquidity condition and rateinduced deposit accretion. In the first part of the next fiscal, FY12, we may see some softening in lending rates due to typically subdued credit demand during this period. However, in the second half, rates will have upward bias. This is due to expectation that the policy rate would increase by another 50-75 basis points during the year. Some of the sectors like consumer goods and small enterprises are quite rate sensitive and risks of nonperforming loans in these sectors due to rate hikes cannot be ignored. Banks have to be very alert on these segments. Several other categories of borrowers may not show negative correlation with interest rates so far as quality of loan assets is concerned. Overall we are now close to the historically highest level of lending rates. 8. How has been your experience with Education loans as it has almost been a rationed commodity unfortunately?

We are active in the segment. We do education loans as we are economic agents and if bankers think like manufacturing industry then no growth will take place not only in India but in any country for that matter. The basic principal of the banking is to mobilize savings and create earning asset. We take measured amount of risk and are supposed to take risk. Though education loans are bit of a concern in terms of NPAs, which are showing signs of rise. We expect education guarantee fund to come soon. See, the Government can create education infrastructure, but not make it for free. It should lead to commercial borrowings. In this segment the risk is high, but this risk is justified. The concern is not about funding but of creating a education guarantee fund. We have been growing at the rate of ____% but if you grow exponentially then you are exposed to higher risk. 9. Do you think the emergence of the Banking Ombudsman as a grievance redressal machinery has improved customer service in the banks in general? How do you see it going forward? It is an expeditious and inexpensive system; however, banks have not been able to popularize this scheme. The nature of complaints with the ombudsman shows low level of awareness amongst customers about the scheme. Thus, though being a powerful system its utilization rate is not satisfactory. In my view, banks are the best place to resolve the customer complaints. Only exceptional cases should go to the ombudsmen. But the challenge is how to do so. The first point is to strengthen the resolution mechanism inside the bank. Secondly, financial education and literacy programs should have in-built modules for customers complaints and resolution. Banks may have their internal ombudsmen who act independently and whole decisions are binding on the bank. Once we have such a framework, customer grievance redressal would be easier and satisfactory. 10. Oriental Bank of Commerce's CASA ratio has been very steady at around _____% which has led to improved NIM (Net Interest Margin) of ___% this quarter and ____% in the previous year. How do you view these to perform in the forthcoming financial year? We have very focused approach on augmenting CASA level. This has been through technology intervention, product development for different customer class, network expansion and a marketing drive. Our CASA level of ____ per cent as of December 2010 has been the result of over 33 per cent growth in savings bank deposits. We are continuously building franchise through government business, corporate salary accounts besides general deepening. Surely, a higher CASA level has positive impact on the margins. Four years back, we had decided to take CASA level to 35 per cent while growing overall business at a rate which is 5 per cent higher than the industry. This was a tough call at that time because general perception is that one may have to compromise with CASA level and margins while growing faster. To our satisfaction, we have been able to achieve both. Thus, our target of 35 per cent for CASA by end-March 2012 remains unchanged. On NIM, we are likely to achieve 3.25 per cent for the current fiscal as compared to 2.77% last fiscal and would like to see it around 3.35 per cent by the next year. 11. With renewed interest in Fixed Deposits due to rise in interest rates, what kind of deposit mobilization you are looking at this quarter? Products such as floating rate Fixed deposits have not really taken off, why? The recent increases in the rate of deposits under various maturity brackets have resulted in healthy deposit mobilization by the banks. We have also seen positive response in our deposit growth, particularly in special maturity brackets of 555 days, 700 days and 1100 days. So far, we have mobilized about Rs.8000 crore in these schemes. We are comfortably placed in terms of credit-deposit ratio and not resorting to market borrowing. Hence, we are looking at mobilizing Rs.15000-Rs.20000 crore of deposits in the current quarter to meet the expected credit growth. Banks have tried floating rate deposits earlier with very low success rate. The major reason is people do not want to risk their portfolio on the downside. The awareness level about the interest rate movement

over a period is almost non-existent even in sophisticated class of depositors; leave aside the large base of general customers. Our markets are not mature enough for such products unless they are made compulsory. 12. Do you foresee a vibrant retail debt market in the near future? If yes would it pose a challenge to the banks efforts to raise fixed deposits? There are multiple policy initiatives being taken to deepen the debt market, which is primarily dominated by the government sector. Policymakers and market participants are vying for a debt market which has depth and wider participation of the retail investors. Today, retail investors do not have many alternative investment avenues in fixed market segment, other than the bank deposits. At the same time, the savings ratio in the country is high at 33.7 percent (2009-10). Of the total household savings, the share of financial savings has increased to over 50 per cent in 2009-10 from 42 per cent five years ago. Still half the household savings are in physical assets. This shows the level of financial deepening and the opportunities available to tap household savings. The development of retail debt market will unlock large physical savings and widen the household savings market per se. 13. Are you contemplating launching the AMC business either standalone or with JV with a foreign partner in the near future? We are set to launch the AMC business very soon through our subsidiary, Union KBC Asset Management Company. We have 51 per cent holding in this company while the rest is with the KBC Asset Management Company of Belgium. Having entered into life insurance business through a joint venture in the year 2009, asset management is an obvious extension. Our country's current penetration levels in mutual funds are only 3 to 4%, clearly indicating the vast untapped potential. There is ample scope for growth in the coming years, especially in the retail segment. We have the advantage of our own pool of customers and reach through 3000-odd branches besides having a good brand value. Being amongst Top 10 AMC players in the country in next five years would be our objective. 14. Please tell us about your plans for new lines of business aimed at the retail consumer in the future? Retail banking was the thrust area of banks in the preceding decade. It coincided with the economic growth and rising aspirations of the people. The story is going to be more pronounced in the future as the pace of shifts across the income curve would be faster. We will have two distinct classes of retail customers. One will be the sophisticated urban mass who will aspire to have better living, better housing and so on. Another segment will be the new entrants in the retail market coming from the rural markets. These customers may be low value propositions but their volume would be enormous. This is the backdrop in which Oriental Bank of Commerce of India is shaping its future. To begin with, we have restructured our retail banking business some three years ago by setting up specialized vertical and creating focused delivery systems. Going forward, we would also like to have a subsidiary or joint venture for offering wealth management services, which is expected to grow 10 times during this decade. In next four to five years, we will also offer broking services. 15. What kind of role do you foresee for players like Apnapaisa which are on mission to empower customers towards taking informed decisions by way of comprehensive display of price and features of various personal finance products?

You are playing a vital role in establishing a link between the banks and the customers. Moreover by communicating with the users about what the banks stand for, you are doing a great favour. Though there is a very transparent mechanism in place as far as banks are concerned but not many people know about it. Customers are just not aware of the structure we have created, like for online application of education loan which is sanctioned within 48 hours, which many are not aware of. By doing such fantastic job, in next ten years you will effectively serve the cause of India's next generation. In Oriental Bank of Commerce, our focus is on Online media because it is a preferred medium for Gen Y customers and future customers will also come from there. There is a great need to communicate the people about the innovations done in the processes by banks. We are also using our channels very effectively, like call center is a very important channel, also we are trying to integrate chatting capabilities with online capabilities, the work is on in this area. We want to be known as Number One bank in retail in terms of customer perception. We know pretty well that all the channels we use for the customers, are aimed at providing him choice and all our channels should give the same experience. For this to happen, we should have an integrated view, where all our staff is aligned to provide that experience which is a tough task but we are doing that. 16. Please tell us about your vision for the industry? We are entering into the Centenary year in 2020, so we are moving towards integrating industry's VISION 2020 with ours. We have been getting 5% higher growth than the industry, and in 2012 we want to become the best bank in terms of customer perception. This is the platform on which we are setting our vision for 2020 resting on the pillars of customer experience and the Human Resource. About Oriental Bank of Commerce of India>>> With its efficient, value-added services, sustained growth, consistent profitability and development of new technologies, Oriental Bank of Commerce has ensured complete customer delight, living up to its image of, GOOD PEOPLE TO BANK WITH. Anticipative banking- the ability to gauge the customer's needs well ahead of real-time - forms the vital ingredient in value-based services to effectively reduce the gap between expectations and deliverables.