In the backdrop of the rising interest rates, Chennai-based Indian Bank has implemented several new initiatives to balance its business. The bank’s CMD, TM Bhasin, in an exclusive interview with FE’s Kumud Das, speaks about the specific measures that the bank is taking to guard its performance.

Will you increase your rates after the latest round of hike in key rates by the Reserve Bank of India (RBI)?

As per government guidelines on lending to artisans, village industries and medium-and-small enterprises, banks have been asked to reduce interest burden on these sectors. We had not passed on the previous hike of 50 basis points by the RBI. So, the effective rate of interest being charged by our bank for these sectors is in the range of 10.75% (which is also our base rate) and 11.5%.

Also, while increasing the tenure of equated monthly installment (EMI) on home loans and small-ticket vehicle loans up to R3 lakh, we have not increased the amount of EMI as per the government’s directive. We are not charging any prepayment penalty for foreclosure from our home loan borrowers now.

How is your credit and deposit growth?

We achieved a credit growth of 21.3% and deposit growth of 21.4% last fiscal as against 24% achieved during the previous fiscal. We have not revised our credit growth target for the current fiscal so far. In fact, we expect it to be higher than the earlier numbers.

There is a lot of talk about corporate credit slowing down…

On a year-on-year (y-o-y) basis, we have achieved a growth of 20% in MSME, 21-22% in agriculture, 13% in retail, 17% in home loan and 9% in vehicle loan sectors during the current fiscal so far. Corporate and commercial sectors have grown 23-24% during the period at our bank.

A lot of disbursals have been made as per the previous sanctions. When it comes to corporate loans, new proposals are less in number and the demand for credit is not as high as during the last fiscal. We have observed a slowdown in IIP numbers. In fact, demand for money is not as high as it used to be two years back.

In the infrastructure sector, we are lending to segments like port, power and road. We are also participating in the takeout financing scheme of IIFCL. At the moment, we have identified assets worth R1,200 crore for it. We are awaiting some changes in the scheme. First, IIFCL is likely to waive the 0.30% takeout financing charges for the banks. Secondly, IIFCL is likely to take up projects under the scheme immediately after the commercial operation date (COD) as against the existing time-frame of one year after COD.

How is the non-performing asset (NPA) scenario?

We were the first bank to migrate to the tracking of system-generated NPAs way back in June, 2010. In fact, this had added NPAs of R850 crore at our bank in the quarter ended in June 2010, resulting in an increase of gross NPAs of the bank to 1.45% during that period. However, after we launched the recovery drive, our NPAs have come down remarkably.

While our gross NPAs have come down to 0.98%, the net NPA has been reduced to 0.51% as on June 30. Our provision coverage ratio (PCR) is currently 84.14%.

Are your restructuring of SME loans at present?

As a matter of policy, on August 26, our bank approved a restructuring policy for micro- and small artisans and village industries and housing loans.

What is your net interest margin (NIM)?

Our NIM was at 3.43% as on 30 June. We expect it to stabilise at 3.50% by the end of the fiscal. NIM is very much under pressure. The increase of interest rate on savings bank accounts by 50 bps to 4% and the convergence balance on such accounts to the daily basis as against the earlier existing system of monthly basis have hit the bank’s NIM by 20 bps. We are trying to ensure that the cost of fund doesn’t go up and, at the same time, the yield on advances does not come down.

Will the slowdown hit your branch and manpower expansion plans?

As on March 31, we had 1,856 branches. It has gone up to 1,922 as on date. We will cross 2,000 branches by the end of the fiscal. We have applied for overseas branches in Hong Kong, and Battikaloa Trincomalee and Hambantota in Sri Lanka. Currently, we have offshore banking operations at Singapore, Colombo and Jaffna. Our overseas business comprises 5% of the total business. It is llikely to grow to 8% by the March, 2013.

As on date, we have got a staff strength of 19,000. We’ve already added 850 new officers and 650 clerks. We are planning to recruit 500 more staffers during the current fiscal, which will take care of retirements and business growth.