IOB eyes M&A financing opportunity, expects lending activity to begin by Q4, says CEO Ajay Kumar Srivastava

Ajay Kumar Srivastava- MD-Indian Overseas Bank

Indian Overseas Bank (IOB) is gearing up to tap opportunities in merger and acquisition (M&A) financing, a segment newly opened up for banks by the Reserve Bank of India (RBI). The lender plans to seek board approval for the policy framework before rolling out the business, managing director and chief executive officer Ajay Kumar Srivastava told Moneycontrol in an interview.

“This is a very exciting development. We’ll first get the policy approved at the Board level. There are many opportunities in this space that we couldn’t tap earlier,” Srivastava said.

He added that once the internal approvals are in place, the bank will actively explore M&A financing. “We’ll approach this with great enthusiasm, and if all goes well, we could see some lending activity in this segment by the fourth quarter,” Srivastava said.

Edited excerpts:

NIMs have improved this quarter. Given the RBI’s policy pause, do you see further scope for improvement?

Yes, NIMs have improved by about 17 basis points compared to the last quarter. This increase came despite a 1 percent reduction in the repo rate last year. Currently, our global NIM stands at 3.21 percent and domestic NIM at 3.35 percent. We intend to maintain them at these levels. Going forward, further improvement may be challenging, but our effort will be to sustain NIMs around 3.30 percent globally. Accordingly, the domestic NIM should hover around 3.40 percent.

The RBI has now allowed banks to finance M&A transactions. What are your thoughts on this?

It’s a very exciting development. We’ll first get the policy approved at the Board level. There are many opportunities in this space that we couldn’t tap earlier. Once our internal approvals are in place, we’ll explore this area with great enthusiasm. If all goes well, we could see some lending activity in this segment by Q4.

Will you be setting aside dedicated funds for M&A financing?

We haven’t thought along those lines yet. We already have sufficient resources. Depending on demand and the size of opportunities, we can consider creating a dedicated fund later.

Underwriting for M&A deals is quite different from traditional lending. Does the bank have the necessary expertise, or will you hire specialists?

Some level of expertise will certainly be required. Once the policy framework is ready, we’ll expose our teams to relevant training programs. If needed, we may also onboard external experts. It’s still early days, but overall, we are very keen to participate in this new segment.

The proposed ECL norms from RBI may require additional provisioning. How much do you estimate?

We’re currently studying the guidelines. Our preliminary estimate suggests that an additional provision of around Rs 2,500 crore may be needed if ECL implementation begins in April. This is only a ballpark figure, not final. Given our strong profitability and growth, we believe we’ll have enough cushion to absorb this when the time comes.

How is your education loan portfolio shaping up, especially after the U.S. hike in visa fees?

The hike in visa fees and geopolitical factors have affected demand for loans to students going to the U.S. However, overall education loan demand remains healthy. Indian Overseas Bank has always been a leading player in this segment, and our focus continues irrespective of geography.

Most demand is coming from within India. Domestic demand is strong, and many reputed institutions in the country are driving it. Overseas, especially U.S. demand, is relatively low compared to domestic.

Your government shareholding stands at around 94%. When do you plan to launch the QIP to bring it down?

That’s correct, it’s around 94 percent. We’re in the process of obtaining approvals. Once we get the necessary clearances, we’ll immediately begin the QIP process. We are aiming for the second half of this fiscal year. The Board has already approved a Rs 4,000 crore issue, which is in the public domain. Once approvals are in place, we’ll move ahead with it.