Public sector lender Indian Bank plans to spend 9-10% of its overall expenditure on enhancing digital and technology prowess in FY25, MD & CEO SL Jain told FE. The bank’s overall operating expenses for the quarter ended March stood at Rs. 3,973 crore, and Rs. 14,301 crore for FY24.
“Around 9-10% of expenditure is being planned for IT (information technology). In the last three years, we have made huge investments in the areas of core banking, server centralisation, digital lending, private cloud expansion, UPI,” he said. His comments come at a time when the Reserve Bank of India (RBI) has imposed severe business restrictions on Kotak Mahindra Bank for IT-related violations.
Indian Bank is targeting 11-13% year-on-year growth in advances, and 8-10% growth in deposits in FY25. Its loan book stood at Rs. 5.34 trillion as of March-end, up 13%, and the lender has up to Rs. 30,000 crore of corporates in pipeline from road, power, cement, textile, food processing, tele communication and other sectors.
While tight liquidity conditions and competition in gaining lower-cost deposits will impact the lender’s cost of deposits, a partial compensation would be made via a rise in marginal costs of funds based lending rate (MCLR). This would enable the bank to maintain net interest margin (NIM) in the range of 3.4-3.5% in FY25, as against 3.44% in March 2024.
The lender is also evaluating the impact of the RBI’s draft guidelines on project finance loans on its balance sheet, and will soon submit its feedback to the regulator after discussions internally and with the Indian Banks’ Association, Jain said.
“This is a draft guideline, we will discuss with them (RBI) because everything will be debited to the P&L of that particular year. So either you can make provisions out of your earnings or start making provisions from capital which will impact CRAR. This we will discuss internally and with IBA as well,” he said.
The RBI, in its May 3 draft guidelines, said lenders should maintain a provision of 5% for loans extended to under-construction projects, and that these provisions can be made gradually in phases till FY27. Once the project enters the operational phase, the provisions can be reduced to 2.5% of the funded loans. Indian Bank’s infrastructure loans stood at Rs. 61,254 crore as on March 31, up 12% y-o-y.
The entire infrastructure loan portfolio does not attract 5% provisions, the MD says, as projects are in various stages of completion. According to a source in the IBA, lenders are individually submitting their feedback via e-mail to the RBI on project finance guidelines. A majority of banks want the provisioning requirement to be lowered from 5%. The RBI may call a meeting with IBA and banks soon to discuss the matter, the source said.
Overall, Jain said the circular ensures higher discipline on part of borrowers. They would be subject to higher cost and won’t be able to undertake multiple projects at the same time, while also ensuring only serious lenders fund construction projects. Around 90% of Indian Bank’s corporate loans are towards BBB+ rated corporates, Jain said.
Lastly, Indian Bank is targeting Rs. 7,000- 8,000 crore in recoveries and upgrades in FY25, and aiming to lower gross bad loan ratio to 3% during the same period from 3.95% in FY24.