Expect loan book to grow 12% this fiscal: IDBI

Saikat Das
moneycontrol.com

The youngest public sector lender IDBI Bank figures in some big loan restructuring cases of corporate borrowers. Like many other state-owned banks, it continues to experience stress in some big accounts as well. According to B K Batra, deputy managing director of the bank, there is a fair amount of stress in the whole industry. Since, banks are integral part of the economy, they cannot remain insulated.
Perhaps, the burden of bad assets prompts the bank to focus more on retail lending.  In an exclusive interview to moneycontrol.com Batra spoke of increasing the share of retail lending to 40% of the total loan book from the present 35%. He also refuted allegations that IDBI Bank as giving out loans too easily, and so the rising number of restructured loans. Here is the edited excerpt: Q. Have the latest reform measures by the government made a strong case of higher credit growth?
A. Credit growth in the first half of the year has been subdued. This is due to the flagging economic. Policy uncertainty affected the investment climate. Most of the companies kept investment decisions on hold.
After the recent policy changes, banks’ credit growth is likely to pick up. The government has lifted the mood. We now expect companies, which were holding their investments, to revive their plans again.
Besides, the consumption demand is likely to rise on the back of increased spending in festivals. This too will add to credit uptick.
Loan expansion has been flattish so far. While repayments are happening but fresh growth does not take place. Originally, we set a target of 18% but now see a growth of 12%. Q. Will infrastructure sector claim a major share of loan growth?
A. Sectors likes FMCG, auto, auto ancillaries along with retail loans will push loan growth. As far as infrastructure sector is concerned, the major issue has been in regards to rolling out fresh infrastructure projects. Those projects will now be looked at differently. Reform measures will not solve problems fully but to an extent. For example, the restructuring measure for power distribution companies (discoms) is certainly a positive. Q. Does your exposure to discoms pose any threat?
A. IDBI Bank's exposure is zero to all state owned discoms. However, we have some exposure in private power distribution companies which are safe and performing all right. We have an aggregate of 4,000 crore exposure in those private entities. In power companies risk is now by and large mitigated. The mismatch between tariff and power purchase prices has been solved. The problem is severe in state electricity boards. Q. Is there any asset quality stress coming out of the coalgate scam?
A. We have looked at some of those exposures. We find that some projects of our clients have been named in CAG report. For such two or three projects, which we have it on our book, they have the tapering linkage also. In case coal mines are not available when the projects start, they have an alternative in the form of tapering linkage from coal mines.
Our total exposure to those companies is roughly about Rs 1,000 crore. There is minimal concern but mitigant is there.
(The tapering linkage means that the power project would receive coal supplies from the Coal India in the interim period before, supply from the coal block allotted to the company begins. Proportionately the entitlement also comes down. It gets adjusted. The aggregate of coal available remains the same.)  Q. What are your retail growth plans?
A. We are witnessing a retail growth of more than 20% year-on-year basis. Currently, it stands at 35-36% of total loan book. It is increasing every quarter. This proportion of loans is rising faster than corporate credit. We would like to have a ratio of 40:60 between retail and corporate loans by the end of March. Three years back, the ratio was at around 20:80. It takes a lot of time to create retail portfolio. It has to be formed carefully.
We expect to improve the share of CASA. Currently, it is more than 20%. We should reach 25% by end of March, 2013. We are somewhat lower than the industry levels. CASA increases customer stickiness. Q. A section of market participants believe one can get  easy loans from IDBI bank. Your comments.
A. I would dispute this perception that it is easy to get loans from IDBI Bank. Our due diligence process (to sanction a loan) is in fact much stricter. We are one of the largest debt syndicators and this can happen when you do a strong due diligence. My experience says, it is rather opposite.  People say, we ask too many questions from a borrower. At the same, it is convenient to get loan for customers, who are not required to run from pillar to post to get a loan. Q. How do you explain the asset quality scene?
A. It is generally believed and true also, that there is a fair amount of stress in the industry. The level of non-performing assets (NPAs) should be higher at the end of the year. This trend is also corroborated by the fact that the number of referral cases in CDR is rising. There is greater stress in the economy and since banks are integral part of it, they cannot remain insulated.
At IDBI Bank, we are also seeing that some clients are going through stress. Some of them might have to be downgraded as well. We have been very proactive in terms of stringent screening and need based restructuring. I can only say, there will be more than marginal rise in NPAs by March, 2013.
NPAs should be tackled at the initial stage when stress starts showing. Cleints need counseling at that point. Banks need to acknowledge the practical problems and give them necessary supports as well. Later you will be able to contain that stress. Q. India’s largest bank is offering a base rate of 9.75% while IDBI offers 10.50%. Will you cut rates?
A. There is always a difference between various benchmark rates offered by different banks. It depends on the formula what they go by. Every bank arrives at base rate depending on their cost of funds. Prior to this latest series of rate cuts, we have been reducing interest rates on retail loans.
To cut rates, you keep looking at demand and supply factors. At this stage, I am not sure whether there will be further rate cuts. However, we will soon take a relook on it in our next asset liability committee meet. Q. How are you placed to meet capital adequacy norms under Basel III?
A. We have assessed our capital requirement in the light of the guidelines. We find that we will be comfortable in the initial years. If we go by guidelines, the phasing in that has been allowed by RBI, we would need capital from third year onwards (2015-16).
Initial two years there should not be any issue. The later two or three years we need more than Rs 1,000 crore. Currently our government shareholding is more than 70%. So there is enough headroom to raise capital. We do not have any immediate need of capital. Our capital adequacy ration (CAR) stood at 14.89% in April-June quarter. It makes sense augmenting your capital.
saikat.das@network18online.com