Google

Nov 10, 2006

Bank Stock News

Corporation Bank- Reinventing itself Dalal Street Journal (Oct-30 to Nov-12,2006) Corporation bank, one of the premier PSU banks, has recently completed 100 years of its eventful existence. Very recently, it was in the news for forging a strategic alliance with Oriental Bank of Commerce and Indian Bank. If this alliance succeeds, it will become a role model for other public sector banks and small private sector banks to leverage each other's strengths. Under the 'Memorandum of Intent' of this strategic alliance, the three banks will collaborate in building e-payment system share IT and treasury resources, among other things. In fact, eight areas have been identified for this collaboration, with provision for further expansion into other areas of cooperation as they move along. This alliance is expected to give these banks fillip to their business and, at the same time, control their costs. The concept of this alliance has been borrowed from the US aviation business. Even though only a memorandum of intent has been signed presently, it has alrealdy created enough excitement among other banks and academicians. If this alliance becomes successful, it will become a case study in the B-schools. The best part about this alliance is that it has been initiated independently by the Chairmen of the three banks and has not been done at the behest of the central government. This shows that public sector banks are thinking on their own to take on the competition from foreign banks which would become real after 2009. The second best part about the alliance is that the Chairmen of these banks have been able to get the second tier of their respective banks involved (upto the General Managers' level ) in this alliance which would ensure that this alliance will last even if any of the Chairman of these banks gets transferred or retires. " We have been able to percolate it down to the second tier," declares B. Sambamurthy, Chairman, Corporation Bank. Further, Oriental Bank of Commerce is very strong in north India while Corporation Bank is very strog in south India, and hence there is not much of overlapping of their business. This would ensure that this alliance works on the larger scale. But Corporation Bank is not doing this alone. Despite being 100 year old, it is still nimble when it comes to formulating its business strategy. It is now reinventing itself, says Sambamurthy. The bank, which was once very strong on cash management with almost monopoly situation, has seen stiff competition emerging from other banks. This has affected the bank's business. Corporation Bank also had good revenues from primary dealership, but recent competition in this business has made survival tough. As if this was not enough, the bank was concentrating more on the bottomline rather than expanding the size of its business. All there had adverse impact on the bank's financials. The bank's topline hardly improved from Rs.2520 crore in March 2003 to Rs.2824 crore in March 2006. On the other hand, Andhra Bank which has similar income improved in a much faster way, In fact, in 2002, Corporation Bank has 50 % higher net profit than Andhra Bank, but today the situation is that Corporation Bank has lesser amount of profit as compared to Andhra Bank despite having similar revenues. "We need to reinvent ourselves and hence we are investing substantially on technology" informs Sambamurthy. But that is the only one part of the story. The bank is also looking at expanding the size of its business as this will give it new business dimensions. "We want to grow" emphasizes Sambamurthy. The bank has adopted double-pronged strategy for growth. On the one hand, it wants to acquire new customers while, on the other hand, it wants to cross-sell not only its own banking products but also third party products. Today, the bank boasts of 70 lakh customers, out of which near about 50 lakh customers have savings bank accounts. The bank will be tapping these 50 lakh customers for cross-selling . Just to cite an example, the bank can sell products like housing loans or automobile loans to existing SB customers. One of the greatest advantage of cross-selling is that the bank already knows the creditworthiness of its customers due to its past banking operations. This not only reduces the possibility of NPAs but also makes processing of the loans faster. For acquiring new customers, the bank has identified 4-5 strategic categories like software professionals, doctors, NRIs and so on. The bank would be designing unique solutions for each of these categories so that the products of the bank become appropriate for each category. The bank has already initiated the process and a couple of pilot projects are already on. In fact, LIC has 26.32 % stake in the bank and Corporation Bank sells LIC products. There are many people buying LIC policy through Corporation Bank although they are not the bank's customers. Corporation Bank will try to rope them in as its customers for the SB accounts. Further, the bank is also focussing on three Ps: Product, People and Process. Under 'Process', the bank is standardizing documents and reengineering process so that productivity per employee goes up further. Not many would be aware, but even today, Corporation Bank has one of the best productivity per employee (business per employee). For the year ended March 2005, the bank had business per employee of Rs.4.47 crore as against the industry average of Rs.3.47 crore. The ratio further went up to Rs.5.27 crore in the year FY06. Further, the bank also boasts of the one of the lowest NPAs in the country (amongst the public sector banks) with a NPA ratio of 0.64 % as on March 2006. In fact, it was the first public sector bank to publish its result under the US GAAP since 1998-99. On the financial front, the bank reported income of Rs.2,824 crore with net profit of Rs.444.46 crore. The bank's business stood at Rs.56,839 crore. In the first half of the current year, the bank has seen smart improvement in both topline as well as bottomline. While its topline improved from Rs.1,244 crore to Rs.1,562 crore, its bottomline improved from Rs.229 crore to Rs.271 crore. The bank has set an overall business target of Rs.70,000 crore for the year March 2007 and wants to take it up to Rs.1,00,000 crore by March 2009. The current market price of Corporation bank is Rs.402 and we are expecting the bank to report a net profit of Rs.520 crore for the full year, which would be highest since inception. The bank has an equity capital of Rs.143.44 crore, giving an EPS of Rs.36.25. The bank has been a consistent dividend paying company and paid Rs.7 per share as dividend. With negligible floating stock of its shares, it is likely that Corporation Bank will outperform its peers on the bourses.

News

Central Bank of India's capital revamp plan gets nod The Union Cabinet on Thursday approved an equity capital restructuring plan of Central Bank of India to strengthen its balance sheet and help raise capital at a competitive cost. Under the plan, the bank would convert Rs.800 crore of its equity capital of Rs.1,124 crore into Perpetual Non-Cumulative Preference Share capital at an annual floating coupon of 8 percent (benchmarked to repo rate plus spread of 100 basis points). The coupon rate would be readjusted annually based on the prevailing repo rate on the relevant date. New non-life insurance joint venture Allahabad bank, Indian Overseas Bank, Karnataka Bank ltd., Dabur Investment Corporation and Sompo Japan Insurance Inc have come together to form a non-life insurance company. The proposed company shall be called Universal Sompo General Insurance Company Ltd. The shareholding pattern will be Sompo Japan 26%, Allahabad Bank 30%, Dabur Investment 10%, Karnataka Bank 15% and Indian Overseas Bank 19%.