Given the disproportionate effect the digital ecosystem has had on the cash economy—driven in no small part by the world-beating unified payments interface—it is no surprise that information technology or IT is top of the agenda at all lenders. In keeping with that, Indian Overseas Bank (IOB) is expected to spend 15-20 percent more on its IT infrastructure in the current financial year than it did a year earlier, Ajay Kumar Srivastava, managing director and chief executive officer, told Moneycontrol in an interview.
In FY24, the bank's IT spend was capital and revenue expenditure of Rs 1,100 crore, Srivastava added.
He added that the bank will not take any hit on their investment in its joint venture India International Bank (Malaysia), despite winding up of operations. Edited excerpts:
What would be the impact of the Reserve Bank of India’s (RBI) project finance diktat? (The central bank had earlier this month raised the provision requirement for loans to under-construction projects to 5 percent from 0.4 percent)
If it is implemented, the provision requirement is in phases during the construction period, so immediately, there will be no first-year impact but there will be second-third year impact.
It will not prompt us to increase infra loan rates. We will be very keen to lend, including to infrastructure projects. The only thing will be that it will be slightly costly for the companies. It will increase the bank’s provisioning requirements, but it does not mean than we will not be lending or we will go slow.
We will be lending to the infrastructure sector like any other sector, and the additional cost that will come in the form of provisions, we will charging from the borrower companies.
Also read: Indian Overseas Bank adopts multi-pronged approach to ensure recovery from NPA accounts
How much is the bank planning to spend on IT infrastructure in FY25?
For this year, preparations are underway and departments are working on it, and certainly it will be in tune with our requirements and whatever we spent last year, it will be around that or slightly higher than that.
You can expect 15-20 higher spend on the IT segment in FY25.
Your cost of funds has increased in FY24. Where do you see this headed? Will it have any impact on net interest margins (NIMs)?
In the last one year, the cost of deposits has increased as the growth is not happening the way it should happen and naturally, to get deposits, we increased the interest rates on deposits.
We have created a new bucket of 444 days in which we are giving 7.30 percent and in that bucket it is highest in the system, which has added to the cost. But at the same time, we were able to garner a good amount of deposits in that portfolio and we will maintain that.
If the situation demands and market conditions get tough, we are open to increase the rate of interest. To negate that impact of the increase in interest rates and to protect NIMs, we will be repricing our credit products so that the margin is protected.
How much reduction in non-performing assets (NPAs) do you expect and at what levels it will be by end of this financial year?
For the FY25, we have guidance of 2.3-2.35 percent of gross NPAs with all the recovery process measures we are taking. In addition, we have gone aggressively for sales (of NPAs) to ARCs (asset reconstruction companies), so in total 92 accounts were put on the block amounting to Rs 13,000 crore. We are waiting for EOIs (expressions of interest) and binding offers from ARCs and see how it pans out.
I am expecting more than 50-60 percent resolutions, but that is not going to happen. It depends on how the market reacts.
What is happening on the stake dilution front?
We have taken board approval for (a share sale for) Rs 5,000 crore and we intend to raise that money in three or four tranches in different forms.
We are having a government shareholding of 96 percent, if that Rs 5,000 crore happens then it will come down by 9-19 percent. There is no definite timeline for this, but it will happen in this financial year, in fact it may be starting from Q2 and maybe every quarter as part of that.
Will there be any hit on investment in Malaysia?
Even after winding up of that business, we are getting all our money back. There is no hit on our investment.
It is under process as various regulatory compliances processes have to be complied with.
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