Bank of India (BOI) has clear focus on CASA growth and opening 6,000 accounts daily. Rajneesh Karnatak, MD & CEO, tells Mahesh Nayak that core net interest income (NII) will drive future profitability. Excerpts:
What’s your strategy on CASA?
We have maintained a strategic focus on CASA growth, achieving Rs 6,000 crore year-over-year growth despite a slight decline in the ratio to just below 40%. To drive growth, we have identified 1,000 HNI-focused branches (maintaining an average quarterly balance of Rs 5 lakh and more per account) and appointed 82 resource managers, signed over 200 MoUs with governments and PSUs, and are opening around 6,000 CASA accounts daily. While metro branches face pressure in maintaining CASA numbers, we have enhanced product offerings, improved customer service, and expanded our branch network with a focus on semi-urban and rural areas. Currently, 66% of our branches are in these locations and they remain strong in CASA.
Rate cuts have affected margins. What’s your outlook on NIMs?
As far as NIM is concerned, I am confident that by this quarter we should reach the bottom of the cycle. Yes, rate cuts have compressed NIMs. In Q1 FY26, our global NIM stood at 2.55%, down from 2.61% in the March quarter. That six-basis-point compression reflects the impact of repo rate cuts and deposit repricing lag. We expect NIMs to stabilise around this level in the September quarter—plus or minus five basis points—and then begin to improve from Q3 onward.
How has BOI improved asset quality and NPAs?
We have centralised underwriting and separated sales from sanctioning, moving away from decentralised branch-level credit decisions to a fully centralised, risk-calibrated model. Today, branches have only limited sanctioning authority in retail, SME and agriculture segment. Even in our emerging corporates, which target accounts above Rs 25 crore, branches don’t have sanctioning powers; these proposals go to zonal, FGM, or HO-level underwriting teams. We also have 31 dedicated asset recovery branches focused on resolutions, which have contributed to our improved asset quality. They engage directly with borrowers to understand the challenges and address them proactively. Our gross NPA is 2.92% and net NPA is 0.75%, with improved slippage ratios and credit costs. Our full-year guidance for Net NPA is 0.70%.
How has digitisation changed customer journeys and staffing needs?
With digital adoption and automation, many repetitive tasks have been streamlined, reducing the need for manual intervention. With AI and ML becoming central to our operations, many routine tasks have been automated. Over 95% of our banking transactions are now digital. We have digitised 23 loan journeys across retail, MSME, and agriculture—including documentation—which has naturally reduced footfall at branches and, in turn, staffing needs. But this isn’t just about efficiency, it’s about evolution.
Which segments are you focusing in RAM (Retail, Agriculture, MSME) credit?
In retail, our focus remains on secured loans, particularly housing loans and personal loans to salaried customers. In agriculture, we are targeting allied sectors and food processing. For MSMEs, we focus on all segments with targeted schematic products. For medium-sized enterprises, we have opened 20 emerging corporate branches. With revised MSME definitions, we can lend up to Rs 100 crore each in working capital and term loans. That’s a big opportunity.
Is rate competition affecting MSME lending profitability?
We are very mindful of pricing. Our cost of deposits is 4.85%, and yield on advances is 8.01%, giving us a spread of 3.16%. Regarding pricing, we use our own internal rating models calibrated for our own underwriting standards, historic PD (probability of default) and LGD (loss given default) and also RAROC (Risk-adjusted Return on Capital) model to assess viability. For AAA-rated corporates, we consider the full relationship by bundling services, including salary accounts, insurance, retail loans, and wealth products, before pricing to enhance profitability.
Will treasury income sustain?
We will book some gains in Q2 from strategic sales. But going forward, core net interest income will drive profitability. With ample liquidity and CRR cuts, deposit rates may come down, improving NII and NIMs.
How do you view the impact of US tariffs on Indian exporters?
The recent US tariff developments are a concern, though not expected to cause any major disruption. I am confident our exporters are resilient and adaptive, already negotiating pricing and diversifying to new markets. We will continue lending to these sectors, but with caution. For long-standing clients with diversified operations, I am confident they will weather the storm. We will protect our books through enhanced due diligence and prudent exposure management. Our exporters will de-risk and rebalance their portfolios effectively in the medium term.
What’s your view on affordable housing?
We are active in affordable housing, particularly through MoUs with government entities. These loans, typically in the range of Rs 20–35 lakh, are concentrated in Tier 2 and Tier 3 cities. Beyond the loan yields, they serve as strong entry points for new-to-bank customers and often lead to bundled relationships, making them a valuable proposition.
What’s the status of corporate lending and Capex?
While government capex is strong, private capex is limited, with corporates preferring equity, NCDs, and CPs due to competitive rates and internal accruals. But we are seeing traction in data centres, EV batteries, renewables, warehousing, and LRD deals. Most of this is term lending. Working capital limits are largely undrawn due to surplus cash. For corporates, we assess not just the credit but the overall relationship value, including salary accounts, retail cross-sell, wealth management and ancillary business. That ecosystem view helps us make informed decisions, even when offering finer rates.
What’s the outlook for BOI’s international business?
International loans make up 15% of our portfolio, with a diversified mix of 38% to Indian corporates abroad, 38% for trade finance, and 24% to local entities. However, our primary focus is on domestic growth, driven by better margins, with a guidance of 12-13% overall credit growth, and domestic lending expected to grow slightly faster. This strategic emphasis aims to maximise returns while managing risk effectively.
How do you plan to enhance stakeholder value?
We focus on fundamentals—balance sheet strength, profitability, and organisational agility. As we improve these, the stock will reflect our improvements. We’re building a strong global bank.
How do you envision developing your employees strength and capability? How is Bank of India approaching this?
I have always believed that people are the heart of any organisation. Whenever I discuss our strategic priorities, I refer to the PPT framework—People, Process, and Technology —and for me, People come first. At Bank of India, we have undertaken significant recruitment in recent years, hiring probationary officers, specialists and workmen staff. In FY25, we recruited over 1,200 staff, and for FY26, the intake is projected to rise to around 2,700 employees. We are deeply invested in our people. We have launched our HR transformation project – STAR LIGHT, a comprehensive initiative focused on upskilling and reskilling our junior-level staff to AGM level, while also developing leadership and succession plans for AGMs and above. The program spans HR operations and learning & development, and it’s designed to make our workforce more agile, adaptive, and ready for the future.
Will the new IBC reforms help?
Yes. Stronger guidelines mean quicker timelines and greater leverage for banks in achieving better resolutions. Personal and overseas liability provisions will deter defaults and improve recovery timelines.
What’s your exposure to microfinance?
A very minimal amount of around Rs 1,200 crore, or 0.1% of our book. Most microfinance activity is through our RRB.
Is BOI shifting toward affluent banking?
We have always had affluent banking. Our NRI base is strong, and we offer dedicated services like prompt customer helpline in GIFT City. But as a public sector bank, BOI remains committed to financial inclusion, supporting Jan Dhan, BSBD, and pension schemes. We serve retail, MSME, agriculture, and corporate segments. Our goal is to be inclusive while offering premium services where needed.
KYC compliance has been a challenge for many banks. How are you managing it?
Most KYC issues stem from legacy accounts. New accounts opened digitally follow strict SOPs aligned with RBI guidelines. For older accounts, we are addressing gaps through CKYC and re-KYC—updating customer records, minors becoming majors, name changes post-marriage, and address changes. We have centralised new account opening through the Zonal Centralized Operation Departments (ZCODs) across 69 zonal back offices that validate documents before any account is activated. This adds a layer of enhanced due diligence.