South Indian Bank is aiming to lower its gross non-performing assets (NPA) to less than 5 percent of total advances by March-end, said Murali Ramakrishnan, managing director and chief executive officer of the Kerala-based lender.
Any asset becomes non-performing when it ceases to generate income for the bank. For the July-September quarter, South Indian Bank’s gross NPAs fell by 98 basis points to 5.67 percent from 6.65 percent last year. Net NPAs dropped 134 bps to 2.51 percent from 3.85 percent on a year-on-year basis. One basis point equals one hundredth of a percentage point.
“We are endeavouring to reach a net NPA level closer to 2 percent by March, that's the plan and that's my wish list,” Murali Ramakrishnan told Moneycontrol in an exclusive interview. “I will want to bring down gross NPAs to 5 percent or below that level, if possible.”
With the COVID-19 pandemic waning, banks have reported an improvement in asset quality. A pickup in economic activity, better collection efficiency, front-loaded provisioning of bad loans and tighter underwriting practices have helped lenders preserve their balance sheets and protect asset quality.
Ramakrishnan said while the lender would focus on bringing down its bad loan ratio, it would also be very conscious of its provision coverage ratio (PCR). The private lender’s PCR, including writeoffs, stood at 72.79 percent as of September-end. The plan is to improve PCR, including writeoffs, to 75 percent by March, the MD said.
The private lender also expects to recover bad loans worth Rs 1,200 crore this financial year, said Ramakrishnan, adding that the restructured book worth Rs 1,997 crore is in “excellent” form.
Also read: IDBI Bank targeting bad loan recoveries worth Rs 4,000 crore in FY23: CEO Rakesh Sharma
Eyeing double-digit credit growth
Apart from maintaining asset quality, South Indian Bank is also expecting to clock 12-13 percent credit growth for FY23, the managing director said. Credit growth is expected to come across verticals, he added.
“There is differing growth across segments, but certainly we will be showing growth in corporate, in gold, in SMEs (small and medium enterprises), in personal loans (and) in home loans,” Ramakrishnan said.
For the July-September quarter, South Indian Bank’s gross advances grew 16.56 percent year-on-year. While corporate loans grew just over 42 percent, the bank’s personal loan book grew by 187.2 percent and gold loan portfolio was up by over 36 percent year-on-year in the reporting quarter.
Private lenders such as Federal Bank and IndusInd Bank have also guided for double-digit credit growth for FY23 amid broad-based credit offtake in the economy. However, to fund the credit growth, banks are also looking to mobilise deposits at a faster pace by offering higher interest rates at a time when the Reserve Bank of India (RBI) is also hiking the repo rate.
In such a scenario, South Indian Bank’s Ramakrishnan said that the bank will continue to focus on Current Account Savings Account (CASA) mobilisation. However, the bank will not blindly increase the rate of CASA deposits, so as to not impede the cost of funds, he added. The lender also aims to keep its net interest margins above 3 percent for the financial year, as compared to 3.21 percent in the July-September period, he said.
The bank will also evaluate capital raising in the next two to three quarters and tap the market at the appropriate time, he said.
Also read: Festive fervour | HDFC, SBI, Bank of Maharashtra cut home loan rates
Branch expansion plans
Ramakrishnan said the South Indian Bank's plan to open about 10 to 15 branches every year is intact. At the same time, it will continue to make strides in digital lending as well with fintech partners, he added.
“I look at fintech as a partnership through which banks can work together with fintechs to leverage their technology capabilities. And banks can use their own distribution as well as branch strength to reach out to customers,” said Ramakrishnan.
South Indian Bank is already talking to 3-4 non-banking finance companies to explore co-lending partnerships, he added.
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