‘This is an area where good lending can happen, and that is one of the priorities for the next quarter.’
Indian Overseas Bank (IOB) is betting big on merger and acquisition (M&A) financing, a field recently opened by the Reserve Bank of India for banks.
The lender is also taking steps to address concerns around Current Account and Savings Account (CASA), said Managing Director and Chief Executive Officer Ajay Kumar Srivastava.
In an interview with Shine Jacob/Business Standard in Chennai, Srivastava talks about the expected credit loss (ECL) framework, and the impact of GST reforms during the third quarter.:
What are your thoughts on the RBI opening up the merger and acquisition (M&A) financing?
We are going to the board with a policy for M&A. Once it is approved, we will certainly be looking at this. There is a lot of scope in this in Tamil Nadu and other states.
This is an area where good lending can happen, and that is one of the priorities for the next quarter.
How are you looking to address the CASA concerns, as your CASA ratio declined during the second quarter?
In terms of CASA percentage, we are the third-best bank among public sector banks after Bank of Maharashtra and Central Bank.
We are consistently maintaining it at around 42-43 per cent. For the September quarter, it has come down to around 40.5 per cent for the first time, as some money that was expected to come did not happen.
After taking over in January 2023, the first thing that we did was revisit all our CASA products. A special team studied all the available CASA products in the market, in both government and private sectors.
Then we created a mix of everything with unique products. After that, we started systematically onboarding customers.
In the last two and a half years, since April 2023, we have onboarded around 8.5 million new CASA customers.
In these new CASA accounts, the current balance is around Rs 24,000 crore. That is one way of ensuring that CASA growth happens.
We are aggressively focused on institutions and government. In all state capitals, we have created a team called the Government Business Cell (GBC) to network with the government.
This is not just on the deposit or CASA side, but on credit requirements, pensions, and all types of government businesses.
Because of that, we were able to onboard many good CASA accounts. This is the overall strategy on CASA and we realise that without onboarding new customers, it is very difficult to grow or maintain CASA.
What are the steps being taken for the transition to the ECL framework from the current incurred loss framework?
ECL was under discussion earlier also, and now it has come in a new form. The draft guidelines are out and we have got time till April 2027.
At first glance, we expect the incremental provisioning impact due to ECL transition to be around Rs 2,500 crore- 2,800 crore.
It is a one-time impact to be adjusted in four years. This number is only an estimate.
Let us assume that this figure is correct. Till April 2027, there are six more quarters, and we expect that the way we are growing, we will be able to create sufficient business to adjust that requirement in one go.
That is what we are planning. I do not believe that it will be a major challenge.
If at all additional provisioning is required, we will be able to do it through our internal accruals. I do not see any challenges.
In terms of credit, are you seeing textile or any other export-oriented sector as a stress pocket due to the uncertainties in the United States market?
So far, I have not seen any of the products or any of the sectors.
Textile, shrimps, and other seafood exporters are under a bit of stress due to the United States crisis (tariffs).
We have been regularly interacting with them. We have only the Tiruppur belt, and for shrimp, we have only Andhra Pradesh and Odisha.
Exporters informed us that it will be very difficult for the US buyers to replace the kind of products they are exporting.
The burden is also one-third each between exporters, counterparts in the US, and also customers in that market.
Everyone is sure this is a temporary concern. We are seeing stress in the thought process, but financially, the conduct of the account and cash flows are good.
Have you started seeing the impact of GST 2.0?
In the personal loan segment like housing, vehicle loans etc., we are already seeing a lot of enthusiasm.
We are witnessing a 20-25 per cent rise in queries since it was announced a month ago.
The actual conversion may take time. The impact will get reflected from November onwards, with the entire retail and part of MSME too expected to witness this uptick in demand.
How was the quarter and how are you seeing the growth going ahead?
We are targeting double-digit growth of 13-15 per cent in the next two years, and in the last two years, we have grown more than that.
In 14 months, our business has increased from Rs 5 trillion to Rs 6 trillion.
Quality growth is happening. If conditions are conducive and we are getting good borrowers, we may go beyond 15 per cent growth.
For the first and second quarters, growth has been on expected lines on both deposits and credits. During the first quarter, credit growth was around 5.5-6 per cent, and if we take six months as a whole, it is around 11 per cent.
If you see year-on-year, it is around 21 per cent. So, there is consistent growth, and as compared to credit, deposits are slightly subdued for the industry overall.
One special point for IOB on deposit growth is that we generally do not rely on bulk deposits that come for the short term.
Historically, if you see the composition of the total deposit of IOB, it is CASA plus retail.
CASA has been around 41-42 per cent and the balance 50-51 per cent has been retail.
The bulk which is there has been need-based. As on September 30, out of a total deposit of Rs 3.3 trillion, the bulk was Rs 17,000 crore only, which was around 5 per cent.
That is the level at which we maintain.
If we want to show higher growth, like many players do in the market, we can also go for bulk, but that will not be organic growth.
As a matter of policy and prudence, we are focusing only on retail and CASA.
Purposely, we are focusing on these two sectors only, and that is why total deposit growth is around 9 per cent, as compared to credit growth of around 16-18 per cent.
That is a well-thought-out decision. Despite that, the credit-to-deposit (CD) ratio of the bank is around 80-81 per cent only.
We have been able to maintain substantial credit growth, as a result of which interest income has increased, improving our profitability and NIM.
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Feature Presentation: Aslam Hunani/Rediff
