Indian Bank's cost of deposits may rise 5-10 bps in coming quarters, says CEO SL Jain

S L Jain - MD CEO of Indian Bank

Indian Bank’s cost of deposits is expected to go up by 5-10 basis points (bps) in the coming quarters due to repricing of deposits at higher rates, said its managing director and chief executive officer SL Jain in an exclusive interview with Moneycontrol.

“From here also it can go 5-10 bps higher. This is because the repricing of deposits is happening at a higher rate as against the earlier rate,” Jain said.

In the July-September quarter, the bank witnessed an 8 bps increase in the cost of deposits on a quarterly basis, while on a yearly basis, the cost rose by 24 bps.

According to its investor presentation, Indian Bank’s cost of deposits increased to 5.13 percent in the reporting quarter, from 5.05 percent a quarter ago, and 4.89 percent in the year-ago period.

Jain also said the bank had an impact of 6 bps on the net interest margins (NIM) due to penal interest norms of the Reserve Bank of India (RBI).

Banks must treat penalties for non-compliance as “penal charges” and not levy them in the form of “penal interest” that is added to the rate of interest charged on the advances. Banks cannot treat such penalties as revenues, the guidelines say. Excerpts from the interview:

Why is the CASA (current account saving account) share in your total deposits falling?

Nobody wants to bring down CASA because it is a low-cost asset. We were able to maintain our CASA at 40.47 percent as against 40.56 percent in the last quarter.

The bank is able to maintain CASA above 40 percent in a tough time where the differential between the CASA and the term deposits is high, where there is a run for deposits and people are making investments in mutual funds from saving deposits.

We always want it to be more than 40 percent. Our endeavour will be to protect CASA at around 40 percent.

How much impact was there from penal interest norms?

We are having growth in all components, more or less all components of non-interest income but the penal interest is also now included in the fee-based income, as against the NII (net interest income) earlier.

The impact of penal charges is 6 bps on the NIMs and an increase in non-interest income.

Is there any scope for further increase in the cost of deposits?

The cost of deposits has increased from 5.05 percent in June to 5.13 percent in the September quarter, which is an 8 bps increase. From here also it can go 5-10 bps higher. This is because the repricing of deposits is happening at a higher rate as against the earlier rate.

When can we expect the completion of the NARCL accounts process?

These are seven accounts of close to Rs 700 crore where we have received bids. We will go for the Swiss challenge and whosoever gives the best price, we will sell it out.

The bid we have already received will be concluded in the second half of the financial year, and for the three accounts that are under process, we can expect some delay.

Why have SMA 2 (special mention account) of corporates and others moved up sharply?

Out of this, Rs 2,300 crore, Rs 2,200 crore is one account. It is a government account, which was in SMA 2. There was a delay in payments. This is a state government account, guaranteed by the state government. Hopefully, it will fall out of the SMA category once the accruals start coming.

Have the positions for 300 local officers, which were opened a few months back, filled?

The examination of the applications is completed and the results are expected anytime.