MC Interview: Indian Overseas Bank is targeting credit growth of 13-14% in next few quarters, says MD & CEO

Additionally, to garner more cheap deposits, the bank will look at opening 70-80 branches in the next financial year.

Public sector lender Indian Overseas Bank (IOB) is looking to increase advances by 13 to 14 percent in the next few quarters, said AK Srivastava, its managing director and chief executive officer (MD and CEO). “We would like to grow our credit in double digits, maybe 13-14 percent,” Srivastava said.

In an exclusive interaction with Moneycontrol, Srivastava said that the bank has a credit-deposit ratio of 78 percent and would like to maintain that range.

Additionally, to garner more cheap deposits, the bank will look at opening 70-80 branches in the next financial year.

Edited excerpts from the interview follow:

How is your CD ratio looking?

Around two years or one-and-a-half-years ago, our credit-deposit (CD) ratio used to be around 68 percent; as of now it is 78 percent. Going forward, the same strategy will be there: quality lending will happen and slippages have to be controlled. And we would like to maintain the ratio at the current range.

Also read: MC Explains: Why is banks' CD ratio worrying the banking regulator? Here's all you need to know.

There is a sense among banks that there are challenges in raising deposits. How is IOB looking at this?

Raising deposits has been a challenge but we are not taking any shortcuts. It is not like we go to the market and offer 8 or 8.5 percent and take Rs 500 crore or Rs 1,000 crore of deposits. And then you lend it for maybe the long-term.

Our main focus is on mobilising CASA deposits, and out of CASA, mainly current account deposits. If you go through the bank’s current account portfolio, over the last three-four years, the average current account balance was Rs11,000-12,000. My current account for the first time in the history of the bank is at Rs 22,000 crore.

To mobilise more, we have revamped all the schemes and benefits and we have loaded all the enablers in the schemes and are aggressively marketing.

Is opening new branches part of a plan to garner more cheap deposits?

This year, our plan was to open 40 branches and we are on track. And 50 percent of those we have already opened; the remaining will be opened in another one month and so. Next year, we are planning to open branches at potential centres. And maybe next year we will look at opening 60-70 branches.

How have the RBI’s recent norms on alternative investment funds impacted your bank?

We hardly had any impact because we only have one investment, in Tamil Nadu. The additional provision that we have to make is only around Rs 49 lakh.

Your net interest margin (NIM) saw some contraction in this quarter. What were the reasons for this?

It is across the industry. The NIM gets impacted by interest income and interest expenses and because deposit costs are higher and people are mobilising bulk deposits at high rates. Wherever that is happening, there is a substantial reduction in NIMs. For us, there’s a hit of 15 bps year-on-year, but 15 bps YoY is okay and we have been able to control this damage because of our consistent focus on CASA deposits.

Also read: RBI norms on consumer credit: Banks see some impact but remain bullish

Are you expecting something for the banking sector from the union budget?

It will be difficult to say as it is an interim budget. But I think that in the annual budget, something can be done. It’s too early to assume anything.

Lastly, what is your guidance on credit and deposit growth?

We would like to grow our credit and deposits in double digits. Credit growth, maybe 13-14 percent and deposits, 11-12 percent. This year, our deposits grew at around 8 percent, which is slightly lower than our credit growth, but since the strategies are in place and we are driving it, we hope deposit growth will increase.