Indian Bank saw revenue stream growth and higher cash returns in FY22. Shanti Lal Jain, MD & CEO, shares with Sajan C. Kumar that the bank intends to further expand its RAM segment by leveraging its branches, partnering with NBFCs for co-lending and end-to-end digitalization for MSME and retail products. Excerpts:
Indian Bank reported a 34% year-over-year increase in net income in the third quarter, mainly due to higher earnings and cash reflows. Do you think the momentum is sustainable?
This was made possible by an increase in net interest income and growth in noninterest income in segments such as fee income, foreign exchange income and PSLC commissions, alongside higher recoveries of non-performing loans. We’re up 11% in the RAM portfolio with retail book up 13%, Agri up 14% and MSME up 6%. We have a well diversified loan book with a 61:39 mix of personal and corporate loans.
How do you plan to drive overall loan growth and business generation in FY23 as you have become a stronger entity through the merger with Allahabad Bank?
In FY23, we will look to grow the RAM (retail, agriculture and MSME) segments by leveraging our branches, partnering with NBFCs for co-lending, and expanding our reach through end-to-end digitization of MSME and retail products. We will also focus on driving the business forward through the use of analytics. We strive to build our brand, strengthen credit quality by centralizing processes and reduce TAT. We have increased our focus on investment lending, particularly agri-processing and value chain finance, and agri-jewelry loans are being aggressively marketed through specialized agri-jewelry outlets. For the MSME sector, the bank has partnered with start-up incubation centers promoted by reputable institutions such as IITs and IIMs to fund start-ups. We also seek to increase corporate lending to existing and new customers in key sectors such as Roads, Steel, Textile, Cement, Power, Gas and NBFC.
While RAM is now the bigger chunk, given the government’s focus on infrastructure, are there any plans to increase your stake in the company?
Yes, we intend to increase company progress. For this we have realigned our strategies with a network of offices of large companies and medium-sized companies to drive the business forward. We have established nine LCBs and 17 MCBs across the country that focus on lending to large and medium-sized companies. We have also created a sub-industry within our corporate lending segment to focus on CMS and corporate FX to gain a larger share of the wallet. As the government encourages renewable energy, manufacturing, EPC and IPP are important sub-segments in this sector for us.
Would the bank be interested in syndicated lending to large corporations? If so, what type of safeguards would you consider when providing large advances?
The merger with Allahabad Bank has increased our balance sheet and given us a solid capital base, increasing our risk appetite. As large projects are generally funded through the consortium/multiple banks route, our goal is to have the larger stake in a consortium and have the operating account with us, take a lead and underwrite & down sell to our Increase interest and fees -based income. We use the services of Lender Independent Engineer, ASM and other reputable companies for TEV work.
What is your asset quality now and what is the recovery you expect by the end of the current financial year??
The bank’s asset quality has improved from quarter to quarter. The collection efficiency has improved month by month, reaching 94% in December 21 compared to 88% in March 21. With the gradual improvement in the economic situation, we expect the overall collection efficiency to continue to increase. Our SMA book has steadily shrunk. While SMA 1 and SMA 2 were at 9% in March 21, it fell to 5% in December 21. GNPAs have fallen from 9.85% in March 21 to 9.13% in December 21. Likewise, net NPAs fell from 3.30% in March 21 to 2.72% in December 21. Total revenues for the first nine months of the financial year stood at Rs. 6,470 crore compared to Rs. 2,677 crore in the corresponding period last year.
How many accounts have you identified for transfer to National Asset Reconstruction Company Ltd (NARCL) or the bad bank? Did Indian Bank invest in NARCL?
Five NPA accounts with an outstanding balance of Rs.1,181.13 crore have been identified for transfer to NARCL in the first phase and nine accounts with an outstanding balance of Rs.1,708.65 crore will be transferred in the second phase. The Indian bank has invested Rs 19.80 crore as equity in NARCL and Rs 9.90 lakh as equity in IDRCL.
What is the bank’s equity ratio? Are there plans to raise equity from the government or debt from the market?
In June 2021, we raised Rs. 1,650 crore equity through a QIP. As a result, the Government of India (GOI) shareholding has dropped from 88.06% to 79.86%. The Bank’s capital adequacy ratio as of December 31, 2021 was 15.47%, with CET 1 Capital at 11.38% and Tier 2 Capital at 3.44%. After adding up the nine months to December 21 gains, the CRAR is around 16.50% versus the 11.50% requirement. We are comfortable on that front for now as we have a reasonable capital cushion to support our growth needs. We also have Board approval to raise AT1 or Tier 2 capital of up to Rs3,000 crore. We will raise capital in the market at an opportune time while keeping an eye on market conditions. As we can raise capital from the market, we do not seek capital support from GOI.
Are there plans to further expand digital banking channels? Any new products planned for it?
In Q3 FY22, 76% of the bank’s transactions were processed through digital channels/ATMs. Transactions through digital channels are up 8% qoq and 20% year over year. We are targeting an 85% migration to digital channels/ATMs in the near term. Our mobile banking user base is approximately 65,000 and is growing 26% year-on-year. The net banking user base is around 63 lakh and is growing at 22% yoy. UPI enrollment is growing about 40% while the debit card base has grown about 10% to hit 2.65 billion on December 21. The bank has continuously added new products and updated its existing digital products to improve the customer experience.
How do you want to expand CASA? What about network expansion?
The bank is expanding the retail customer base to achieve sustainable CASA growth. We have equipped our branches with new technological tools such as TAB Banking to ensure all channels for customer onboarding are in place.
In the past fiscal year, we concentrated on rationalizing branches in order to use the synergy effects from the merger. We are now in the process of identifying centers that offer quality business and could enhance our growth prospects. In the current financial year we have approved 56 new locations where we will open branches.