IDBI to launch credit card

MUMBAI: IDBI Bank will soon launch its credit card as part of its retail expansion strategy. The bank will initially launch cards in a tie-up with Visa, followed by MasterCard.
Although public sector banks were the earliest to get into the credit card business, several have exited the space and today only State Bank of India and four nationalized banks have over one lakh cardholders.In an interview to TOI, M S Raghavan, chairman, IDBI Bank, said that the delay in launching cards was because the bank’s primary focus was to improve its retail base. Also, the bank wanted to put in place analytics software that would generate the required management information system for selling.
Speaking on the bank’s plans to fund growth, Raghavan said that for a variety of reasons the bank’s shares were trading at less than half the book value and issuing equity would be selling the bank cheap. An alternative would be to unlock value from its investments. “As a development finance institution, IDBI had promoted several organizations including National Stock Exchange, Care, Sebi, Exim Bank... There is substantial value in our investments in NSE, Asset Reconstruction Company of India (Arcil) and Care, and these could become useful in augmenting our capital,” he said.
Explaining the bank’s thrust on retail, Raghavan said, “Rival public sector banks of our size have a branch network that is nearly thrice or five times that of ours. We had until recently only 1,100 branches which we plan to expand to 2,000 by March 2015,” said Raghavan.
He added that a large retail base would have a three-fold benefit for the bank. First, a retail presence would bring down its cost of funds by increasing the share of current and savings account (CASA) deposits. IDBI Bank has the lowest share of CASA among public sector banks, thanks to its legacy of being a development finance institution. Then, retail loans would help the bank fulfill its priority sector requirement. At present, because of its inability to meet priority sector targets, the bank is forced to invest in low-yielding long-term bonds, which is causing the bank to lose close to Rs 2,000 crore annually by way of lower yield. Thirdly, rebalancing its portfolio would also help the bank derisk its portfolio by diversifying out of project and corporate lending.
“We are not greatly expanding our loan book because of the priority sector targets. Constraining the loan book, however, keeps our ratio of non-performing loans to total assets high as the denominator does not increase,” said Raghavan.