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DFCC Vardhana Bank on fast growth track

Lynn OCKERSZ

Despite having had comparatively small beginnings, DFCC Vardhana Bank Limited is today the country’s fastest growing commercial bank, says the Bank’s Managing Director/CEO L.G. Perera.

This interview with the CEO lays bare the roots of the Bank’s dynamism and provides insights into the ways in which it is aiding Lanka’s development process.

Q: What are the main functions of the Vardhana Bank?

A: The Vardhana Bank is the newest commercial bank in the country. It had a beginning which spans over 10 years under a different name. That is, Merc Bank. But the rebranding and restructuring took place after DFCC took over 95 percent stake of the Bank.

DFCC Bank is the parent company which is a 50 year old Development Bank. As a subsidiary of DFCC Bank we have operated for three years now. Over these three years, tremendous changes have been affected overall.

Vardhana Bank is purely commercial bank. The parent company, DFCC Bank, is a Development Bank, and is not permitted to engage in certain commercial activities, as a result.

So customers of DFCC who obtain certain facilities for setting-up projects had problems getting their working capital requirement.

It was for that reason that DFCC Bank wanted to launch commercial banking operations. As a means of achieving that objective without losing DFCC’s identity as a Development Bank we took the path of acquiring a commercial bank.

It is engaged in all commercial banking activities, current account operations, savings accounts, fixed deposits and so many other deposit schemes on the liability side and on the assets side it provides short term loans, foreign currency loans, Letters of Credit facilities, remittance facilities, guarantees and all that could be provided by a commercial bank is provided by Vardhana Bank.

In addition it also provides Internet Banking facilities and we have a totally online 25 branch operation throughout the country. So this could be termed as the fastest growing bank in the country today.

Q: How do you keep abreast of competition in the commercial banking field?

A: To begin with, the support of the parent company, DFCC Bank, which has a history of 50 years and has a very loyal customer base across the country, ensures that the same customers are now clamouring to come to Vardhana Bank for their commercial banking facilities.

So, competition is not a serious issue for us. We have a captive customer base coming through the DFCC Bank’s customers.

Q: But DFCC Bank, as I have been given to understand, caters mainly to the entrepreneurial sections of society. Are they also your main clientele?

A: At the moment our focus is on corporate customers. Loans are given mostly for industries, agriculture units, and service sector units, mostly of corporates and SMEs. But on the liability side, that is deposits, we are a very retail bank.

We provide facilities for savings to any segment of the market, be they small or large. Whatever the level, we provide assistance. But on the liability side the focus is one the retail side.

Q: In what specific ways do you contribute to the development process?

A: Well, the main development role is undertaken by the DFCC Bank through long-term funding; to start businesses, new ventures, expand existing ventures, the entrepreneurship requires long-term capital.

That is performed by the DFCC Bank. For this purpose they have various loan schemes, mostly refinanced by multilateral agencies like the World Bank, the Asian Development Bank, the German Development Bank, European Investment Bank, etc. That function is done by them.

But merely by providing long term capital to set up industries, you cannot sustain them. You need working capital, day-to-day running capital for industries to survive and prosper. It is that function which is performed by the Vardhana Bank. It is more of a support role for the DFCC customer base in the first phase of its operations.

Q: Do SMEs too figure among your customers?

A: SMEs are a very high component of our customer base.

Q: In which direction do you intend taking the Bank?

A: Well, first, as I mentioned, we would focus an serving the DFCC customer base. Now we are opening up for non DFCC customers as well. Initially, all our branches were located on DFCC branch premises.

But over the last couple of years were have opened branches in independent, our own locations. Now, to widen our market share we are diversifying into non-DFCC customers as well.

Q: And are you satisfied with your market share?

A: Yes, within a short period, there’s no bank in this country which has acquired such a growth.

If you look at our deposit base, for instance, we began with Rs. 300 million deposits in 2002. In 2003 it was at the same level. But by the end of 2006, we have exceeded 7 billion rupees. It is almost 8 billion. This is an increase of over 20 fold.

Q: Is product innovation also one of your strengths?

A: Yes, we have come out with a range of new products. Also in services. For instance, we came out with a very unique children’s savings product, which is mainly designed to meet the educational requirements of children.

We also have a float savings scheme where customers have the flexibility of moving their account balances from one account to the other automatically, thereby giving them the best possible interest rate. This facility is not available in most banks.

We also were instrumental in implementing one of the most modern technology platforms to the banking sector. We implemented in 2006 a new co-banking package with modern features. No other bank in this country has introduced as package of this kind.

All our branches are online connected and all provide ATM facilities as well.

On the loans side, in 2006 we started with around 250 million rupees of loans and advances which went up to about 8 billion rupees by end of 2006. That is around a 40 fold increase which is a phenomenal increase by any standards.

The Bank was incurring losses when the DFCC took over. The losses were in the range of 150 million to 250 million per year.

But within an year of full DFCC ownership and management, last year we recorded a profit before tax of 117 million rupees, which is unbelievable for a bank which is operating in a new structured form for less than three years.

Q: Are there any obstacles to the development of the SME sector in particular and the business sector in this country in general?

A: Well, the trend prevailing in the country now is not conducive to SMEs. The high interest and the high inflation rates which we have seen develop over the past 12 months or so are not conducive to the development of SMEs, or for that matter large industries.

Overall growth of the country is retarded as a result of the high inflation and high interest rates. This has to be arrested. At the moment lending rates are in the range of 20 percent which is too high.

Of course, on the other hand, for depositors also, high rates are being afforded. But inflation eats into their income. So, very concrete action is required from the monetary authorities to have price stability in the country.