Capital infusion may help reduce rates by 25-50 bps: IOB

Finance Ministry's decision to infuse more funds in public sector banks (PSBs) to enable them to offer loans at cheaper rates would help Indian Overseas Bank reduce rates by 25-50 basis points, CMD M Narendra told CNBC-TV18.

The Finance Ministry on Thrusday decided to infuse more than the budgeted Rs 14,000 crore into PSBs to help stimulate demand.

Meawhile, this public sector lender estimates a 14 percent credit growth for FY14 and is primarily focused on lending to retail and small, medium enterprise (SME), he added.

He further added that IOB has asked for a fund support of Rs 2100 crore and in case that full amount is not given, the bank would opt for a Qualified institutional placement (QIP) or rights issue whenever the market is right.

Below is the verbatim transcript of his interview on CNBC-TV18

Q: Any indication when you will get the capital and how much you are getting?

A: We have asked for a total capital of Rs 2,100 crore at the rate of 14 percent credit growth. We have been getting support from the government and we expect that Rs 2,100 crore of capital will be given. However, if there is any gap in terms of that then we could have an opportunity to go for QIP or right issue as and when the market if right for that.

Q: If the money is given then will you be in a position to drop rates because this money is not coming cheap – you are giving Rs 2 for every 10?

A: If at all there is additional capital support in overall pool of funds as a capital, it will help. Parallely, our efforts are on to reduce the cost of deposit by reducing the bulk deposit, and we are also focusing on current account saving account (CASA) going forward. This should help us to have certain priorities sector look at a better interest rates.

As on date, for housing loan we lending at 10.25 percent upto Rs 30 lakhs and beyond that also at 10.75 percent. Vehicle loans too are given at 10.75 percent.

I hope that if there is additional support we would be able to bring it down by 25 to 50 basis points, so as to support consumer durables and vehicle loan sectors. This will definitely revive the consumer demand and it will have an impact in terms of manufacturing activity.

Q: As the risk weighted assets go up, a bit of your capital will get used up isn’t it?

A: We are primarily focusing on retail credit, SME, the national target of agriculture. Also on working capital for customers who are already with us because of the festival season is coming there maybe requirement of festival credit. We call this as the incremental working capital.

With regards to other projects, which were already taken up where we are having necessary release of term-loan, we do not find any substantial focus on credit except that we are planning around 14 percent credit growth.

To that extent, risk wise we have taken Rs 2100 crore and we are also looking at the flow back of our own profit. So, I hope that amount would suffice. It is actually only for Basel III to maintain 8 percent tier I, which as such Basel III it is not required. But since the government has plans that public sector banks should be supported upto tier I 8 percent, I hope Rs 2100 crore will be forthcoming from the government.