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Abhrajit Gangopadhyay

Bank Muscat says its interest in picking up stake in Centurion Bank along with Sabre Capital hinges on "certain conditions" put forward last year.

BANGALORE, April 8

BANK Muscat, after taking over auto and personal loans from individuals, is eyeing entire retail portfolio take-outs from other banks or non-banking finance companies.

"We would be looking at taking over secured assets", the Chief Executive-India, Mr Samit Ghosh, said. Bank Muscat has grown its retail portfolio mostly by refinancing entire outstanding balance and extending fresh credit on mortgage of the asset to individuals. However, by taking over some high quality retail loans, the bank would improve its portfolio of risk-weighted assets.

The bank that started its retail business last year sees it as a major growth trigger going forward. "We want to grow our retail book by close to four times this year", the Vice-President and Head-Retail, Mr Shome Sengupta, said. Currently, the bank has retail assets close to Rs 60 crore, mainly though loan takeovers and personal loans. "The quality of our assets is excellent with almost nil default rates", he added.

The bank also expects to grow its deposits to fund retail expansion, Mr Sengupta said. "We had a retail deposit of Rs 100 crore last year and expect to double this year; also there will be the non-resident Indians' deposits", he added.

With increasing points of presence through direct sales agents and newer products such as overdraft against assets such as cars and mortgaged properties, the bank expects to spur its growth in the retail segment. Though it intends to stay away from vanilla housing finance activities, financing of used vehicles would be prime driver. "Margins in financing used cars are much higher than new cars", Mr Sengupta said.

Foreign banks, especially US banks, have been securitising vehicle loans to raise off-balance sheet resources, mostly through the non-recourse route.

This implies the new financier assumes the entire credit risk. But in raising such resources, the banks have made profits since the original loans were extended at rates as high as 18 per cent. Since the loans have been parcelled at discounting rates as low as 12 per cent, the spread becomes the bank's profit.

However, in such transactions, customers have never benefited since the original covenants remain unchanged. In the takeover of loans offered by Bank Muscat, there would be a substantial benefit to the borrowers, Mr Sengupta said.

Meanwhile, Bank Muscat, which plans to expand through the subsidiary route in India, said its interest in picking up stake in Centurion Bank along with Sabre Capital hinged on "certain conditions" put forward last year.

"It is up to the Centurion Bank board to consider the proposals... we have made it clear last year itself that these conditions would be essential for any investment issue", Mr Ghosh said.

Talks of Bank Muscat eyeing Centurion Bank surfaced soon after the foreign bank's proposed merger with IDBI Bank fell through.

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