Interview | Indian Overseas Bank MD says no communication from Centre on privatisation, 'not even a hint'

Retail demand is still continuing, I can say, even though there is an increase of 40 basis points (100 basis points are equal to 1 percentage point) in the repo rate and as such all the banks have to pass these rate hikes (on to consumers) because all the RAM (retail, agriculture, MSME) segment loans are mainly linked to the benchmark repo rate.

Despite that, the economy is growing and we are seeing a lot of activities in the MSME, services sector and all across there has been a good increase in the salary of most of the private sector employees. If you look at the organized private sector, whether it is the IT (information technology) sector, services sector, or financial sector, whatever reports we are getting show there is a handsome increase in the salaries.

What are the sectors generating demand? 

The demand from retail will continue. We are finding that major projects are coming from the infrastructure sector, mostly road projects. The second one is coming from the solar, renewable energy sector and some also city gas light projects. Definitely, in the corporate sector, the demand for credit will be there because the cost of raw materials has gone up. So I am finding from many of the industry users who are using steel that steel prices have shot up already, cement prices have shot up.

Users of these industries are demanding larger working capital. There I feel that the corporate credit would grow but, yes, since we were in the PCA (Prompt Corrective Action to reduce stressed assets) for the last six years, exiting the framework only last year, and the main reasons if we analyze the reason for going into PCA is our overexposure in this corporate sector.

So are you going slow on corporate credit? 

No, we are very open to the corporates but again we will go with a steady increase. For IOB, you can extend something around Rs 600 crore- Rs 700 crore to a single corporate with a good credit rating. The credit rating will definitely be a factor. We also need to look at the cash flows and to what extent we can extend cash.

I am expecting that the 12% credit growth target would happen from an equitable distribution in all four sectors--retail, agri, MSME and corporates.

How will the Reserve Bank of India’s 40-basis point repo rate hike impact your borrowers’ loan rate? 

If you look at it, the interest rate reversing trend was continuing much before the announcement by the RBI. It was almost for the last three-four quarters that the inflation rate was increasing, which was already having a very direct impact on the bond market.

...it was evident and it was of course inevitable that RBI is going to increase (interest rates) today or later. Till the last MPC (monetary policy committee meeting), RBI definitely had said they wanted to keep a balance between growth and inflation. So post-COVID-19, they wanted the economy to grow. Then the focus was more on growth and thus the rates were constant.

But obviously, as you know internationally the rate hike was just taking shape. Thus, it is a matter of fact and we also knew it ahead of time. Even before RBI increased the benchmark repo rate, our ALCO (Asset Liability Committee) increased domestic term deposit rates by around 40-45 basis points on various segments.

How much can we expect rates to rise this fiscal? 

You see, if we look at various developed countries, the increase in rates is happening in phases. And RBI has started with 40 basis points. I feel that not much change in MCLR (Marginal Cost of Funds based Lending Rate) would happen. As of now, most of the banks have increased it by 10 basis point and we will also discuss it in the next ACLO meeting, but I also feel that it would be around 10-20 bps maximum increase that the banks would be able to make and MCLR will remain competitive.

There will be a little bit of an increase in the fixed deposit rates also... IOB has already increased it in the month of April by 40 basis points, we need to look into it and accordingly we will see in the next ALCO.

What is your outlook on asset quality? 

 My gross NPA (non-performing asset) last year was 11.69 percent and it was a commitment to all of our stakeholders to bring it to single digit and we have succeeded in doing so. So, we have brought the GNPA (gross NPA) to 9.82%; similarly, the NNPA (net NPA), which was 3.58%, has been brought down to 2.65 percent.

The focus needs to be on how to prevent income leakages on account of slippages. Our focus will be to control slippages.

So can we expect GNPAs to fall below 7%? 

We expect GNPAs to fall below 7% by FY23-end. Net NPA would go down by another 100 basis points so it will be around 2.5 percent for the year.

Any net interest margin (NIM) target? 

I think IOB needs to improve and look into the NIMs. NIM got affected because of the slippages. I expect that today we are at 2.41 percent, but the target is 2.75 percent, we need to achieve that.

Has there been any government communication on privatization of bank? 

 Whatever that has come to me as regards to privatization is only from the media. There has been no communication, not even a hint.

No discussion or anything from government side as regard to the privatisation of the bank. We are not taking it as a part of discussion as I have told all my employees and they have also taken it in the spirit that we need to prove ourselves as a growing bank, a bank for all generation, and our aim is to make it stronger.

We are just working on that way. I have not heard anything from the government.