MC Exclusive | IDBI Bank looking to enhance credit card portfolio soon, says Deputy Managing Director

IDBI Bank on October 21 reported a 46 percent year-on-year increase in standalone profit for the quarter ended September 30, despite a jump in provisions, backed by healthy growth in net interest income and operating performance.

The bank’s bad loan ratio improved, with gross non-performing assets (NPA) as a percentage of gross advances falling more than 3 percentage points to 16.51 percent from the previous quarter.

More than a year after coming out the Reserve Bank of India’s Prompt Corrective Action (PCA) framework, the private sector lender is gearing up for a new ownership.

While the bank has turned profitable and brought down bad loans, it has also focused on becoming a retail-focused enterprise.

In an exclusive interview with Moneycontrol, Deputy Managing Director Suresh Khatanhar spoke about the bank’s strategy to scale up retail growth, venture into digital lending and relationship with fintechs.

He also said the bank will continue to mobilise deposits to fund credit growth but may not go for any capital raising in this financial year because its liquidity situation is comfortable. Edited excerpts:

What is your assessment of the RBI’s monetary policy? 

We are in the midst of a growing economy. Our economy has grown the fastest, irrespective of inflationary pressures across the globe. Economic growth post-pandemic has been fantastic. People have started spending; all the discretionary spending that was postponed over the past two years has been taking shape. The growth is being derived from the consumption economy, domestic economy of the country, that's the positive. As a result, liquidity is tightening and there is upward pressure on interest rates. This needs to be managed through policy actions. I think the RBI is focusing on inflation dynamics currently without hampering economic growth.

Do you see scope for more repo rate increases? 

We have not yet reached the terminal repo rate. There could be scope for another 30-to-40 basis points rate hikes, because the overall inflation across the globe is accelerating. We are expecting the terminal repo rate to be around 6.25 to 6.40 percent by March.

Consumption is growing and credit growth is picking up. What is your strategy to cater to this kind of loan growth?

All banks are looking to grow their loan book in a qualitative fashion. Large demand is now coming from the increase in the working capital requirement; the capital cycle has started reviving and new sectors are coming up. Service sector, MSME (micro, small and medium enterprises) is also growing. Consumption is driven by the personal loan segment. We are focusing on all areas. The strategy is to address credit demand, along with refined underwriting and risk management norms.

How are you scaling up the retail loan book? 

We have put in place a scalable model in which we have all-risk mitigated products. If you look at the composition of our retail book, 93-94% of the book is mortgage-based. We are not going aggressive on the unsecured segment. Yes, we are there in the credit card, personal loan space, but a significant portion of the book from the mortgage loans. The quality of the mortgage portfolio is encouraging because more than 85 percent of the book has a CIBIL score beyond 700. Such composition of the book gives us confidence as they are the good credit borrowers and the chances of defaults are minimal. We are also diversifying to grow other products like auto loans, personal loans and education loans. In the last two years, we have doubled our gold loan book as well.

People are taking loans because their requirements have also gone up; their spending power has also gone up. Our collection efficiency has improved. Risks generally depends which segment of the retail banking you cater to, at what pricing you cater to? How are your risk policies to address those issues? How's your client selection norms? So, so far our story has been quite successful.

Also read: IDBI Bank targeting bad loan recoveries worth Rs 4,000 crore in FY23: CEO Rakesh Sharma

Will growing the unsecured book take a backseat for now? 

We will grow unsecure book for the diversification of risk. We have not focused much on credit cards in the last three years because of COVID. We have established business model. But, we have not ramped it up. We will work on enhancing the credit card portfolio in January-March. By that time there will be greater stability and the general economic conditions will also improve.

What would be your guidance on retail slippages? 

Overall, we have guided net slippages ratio to be 2.5 percent on a sustained basis. For retail also we will follow a similar guidance.

What would be your strategy to mobilize deposits? Will you go aggressive with deposit rates? 

Our liquidity continues to be comfortable. To meet the current credit demand for the fiscal, the Bank has enough liquidity to cater to. However, that does not mean we will not be competitive to attract deposits. We want to retain our customers; it's a factor of the pricing. To align that with the industry, we have already improved our pricing. Our saving rates are attractive. We also have a large CASA (current account savings account) deposit base. We have an advantage there and scope to improve our net interest margins.

To what extent do you think your deposit rates can go up? 

It will be aligned to the market. It depends on the competition and other factors in the industry. There could be some difference here and there, but normally it will be equated at the banking level.

Do you think your net interest margins (NIMs) are sustainable? 

About 55 percent of our loan book is repo-linked. So, the effect of repo rate hikes is immediate. On the deposit side, CASA -- low-cost deposit -- is second highest in the industry. Going forward, that will help in maintaining NIMs. For FY23, our NIM guidance is set at 3.25 percent and above.

FCNR-B (Foreign Currency Non-Resident, Banking, deposits) have been pretty muted. Would you want to attract more of those deposits for your bank going ahead? 

Global rates, including that of the US Federal Reserve and Bank of England have gone up, making this source less attractive. Presently, our customer profile is tilted more on the domestic front. For us, there is no pressure to increase FCNR-B deposits.

Do you foresee any capital raise for the bank? 

As far as capital is concerned, the Bank is quite comfortably placed. We have almost 20 percent of CRAR and we are pretty comfortable on the liquidity front. We can take care of loan growth. Although we have a board approval to raise Rs 8,000 crore through bonds and Rs 5,000 crore through equity this financial year, we may not opt for it.

How is your digital foray playing out? How will IDBI Bank stand out among other banks? 

It is natural that we forayed more strongly into the digital age. Even while we were under PCA, we were among the first few to come up with WhatsApp banking. Our video KYC (Know Your Customer) is the most stabilized platform. What we focused on the digital front is to make internal digital tools of monitoring controls very robust. They are robust engines on early warning signal, integrated treasury management systems. We keep adding more services and features on our ‘Go Mobile’ app to make it customer-friendly.

What is your strategy with fintechs? 

We are using fintechs more like a collaboration. For example, we have end-to-end processing journeys of MSME, agriculture loans and personal loans. There, you need a Fintech support through the API banking platforms for supporting on a CIC platforms, GST support, balance sheet analyzers, statement analyzers and general database. For all these aspects, we are using fintech support. It's more of a collaborative in nature.

So you are going to continue with these partnerships? 

Yes, wherever they support our business. These fintechs are complying with the RBI’s digital lending norms and this is giving us a better environment to work with. We are also collaborating with NBFCs (non-banking financial companies) for co-lending. We have already on-boarded four NBFCs, and another three are under discussion.​