After going through a complete restructuring, South Indian Bank ended FY22 with a 4% year-on-year growth. Murali Ramakrishnan, MD & CEO, tells Shashank Didmishe that FY23 is the first year when the lender is seeing a bit of normalcy and the demand for corporate loans is picking up. Edited excerpts:
What is the guidance on credit growth for the rest of the FY?
We will aim for a double-digit growth. The bank had undergone complete restructuring and we ended FY22 with a 4% growth over the previous year. This the first year we are seeing a little bit of normalcy. As of now, we are growing slightly higher, but my endeavour is to grow by 12-13% in terms of credit.
Will rising interest rates have an impact on credit demand?
There is a minor impact on the demand side, especially from those who are marginal in terms of their disposable income. But having said that, customers also know that rates were at a very low level for a considerable period of time, and there was an anticipation that with rising inflation, finance costs will also go up.
How do you see demand shaping up for corporate loans?
Since corporate had a fairly lull period during the pandemic, many of them paid off excess cash flows. They were also able to raise funds at much cheaper cost through bonds. Now, with the revival in the economy, their need for working capital is clearly coming up. So, where we had offered short-term product to corporates earlier, they are now talking for medium- to long-term loans. Although we are not going for many project loans, companies are taking terms loans to fund their expansion plans.
With crunch in system liquidity and banks increasing their deposit rates, what strategy are you looking for to raise deposits?
Clearly, we are conscious of the fact that liquidity is not as good as it used to be. We are very closely calibrating our liability raising strategy by looking at each bucket of fixed deposits and look at how we can price. Obviously, pricing cannot be too high as it will impact our NIMs and at the same time, it cannot be too low that we cannot mobilise the funds. We are also looking at improving our CASA, which is low-cost funds for us. NRI deposits continue to contribute as 30-35% CASA comes from this segment. We are also working closely with the treasury, in terms raising funds through excess SLR. The bank is currently holding around `5,000 crore in excess SLR.
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Will the rise in cost of deposits have an impact on NIMs going ahead?
This will get spoiled if a bank does not pay attention to rising costs and continues to offer low interest rates to retain customers. It is not a good strategy as it will impact the incremental profitability of such banks. Maybe for a large bank, it may not move the needle, but medium- and smaller-sized banks will have to be conscious of how long they want to play the rate game. One needs to price appropriately according to the risks involved. Five to six months ago, SMEs were offered very low rates by many lenders, which was not in tune with risks associated with the sector. Market should clearly know the risk which is attached to the segment and pricing should definitely reflect that.
Against this backdrop, can you give guidance on NIM?
We have been articulating that we want to reach 3% level, where we are now. We are close to 2.95% for the first half of this year. My endeavour is to reach 3.2-3.3% by March 31. This will come with combination of products we offer and contribution of various segments. Some segments we have to price in a way that you on-board only good customers, while in segments where you can afford to price higher, you need to price accordingly to get a good NIM.
Your asset quality has improved in this quarter. What is the outlook going ahead?
I have given full-year guidance of Rs 1,600 crore on slippages. For the quarter ended June 30, we had slippages of around `430 crore, and for this quarter, the figure is around Rs 360 crore. We expect to curtail it within Rs 1,600 crore for the full year. So far, slippages have been better than what we had envisaged. We have total standard restructured book of Rs 1,997 crore and we are expecting slippages of 25% from this restructured book.
What are the capital-raising plans going ahead?
When you are growing at double-digit, you have to be conscious of capital requirement. To that extent, we will continue to remain watchful on need for raising capital. As soon as a quarter is over, we have a meeting of capital raising committee and discuss capital adequacy and plans to raise capital for the next two quarters.
As of now, we have decided that we will lock-in on capital raising after Q2FY23. This has been a stable year for us. So, we cannot be in a hurry and also we cannot delay, both will not be helpful. We need to time it perfectly.