Chennai-based public sector lender Indian Bank has achieved robust profitability in the first quarter of FY24 on a strong operating performance combined with moderating provisions. Increase in income stream and improvement in the asset quality have helped the bank achieve the feat. Indian Bank’s managing director & chief executive S L Jain told FE’s Sajan C Kumar in an exclusive interview that it is growing in a planned way with major thrust on retail, agriculture and MSME sectors and expects to achieve 10% to 12% credit growth for FY24. Excerpts:
Indian Bank has performed well on all parameters in Q1FY24. What are the factors behind your achievements?
The bank’s loan book as of now has RAM (retail, agri and MSME) contributing 61% of the total while corporate rest 39%. In June 2022, we had the same ratio while in June 2023 we are having the same numbers. We will have the same picture in June 2024 as well. It means we are growing in a planned way and by choice. We are growing in the products where risk is manageable and return is reasonable. As a result, our growth is happening and when you are a retail bank (with 61% RAM), then your branches are able to create assets. When the branches are able to create assets, then there is a growth in retail, agriculture and MSME. In the process, we have been acquiring customers and the customer base has been increasing. This is a recipe for continuous good performanc quarter after quarter.
You have made improvements in asset quality. Do you think it is sustainable going forward?
The gross non-performing assets (NPAs) of the bank was around 11% on the date of amalgamation with erstwhile Allahabad Bank and post that we have been continuously reducing it. Now that number stands at 5.47%. Likewise, at the time of amalgamation, the net NPA was at 4% plus and now it has declined to 0.70%. Now, NPAs are dependent on your on-boarding and underwriting standards as well as your collection efficiencies. On the business side, we have created nine large corporate branches, where we are having a business of more than Rs 130 crore and 26 mid-corporate branches with a business in the range of Rs 30 crore to Rs 130 crore. The mid-corporate segment has been growing 15% to 20% every year and gives good margins to the bank. The large corporate segment is also growing by 14%. Our team is not only marketing and processing the loans, we are also discussing each and every term with the promoters of the companies. Our turn around time is fast and as a result we are able to create good quality of assets.
What are your plans on the recovery of bad assets?
In Q1FY24, our fresh slippage was to the tune of Rs 1,753 crore and the recovery was around Rs 2,008 crore. For the past five to six quarters, our recovery has been more than the slippage. Going forward, we expect the same trend to continue, so that our gross and net NPAs decline further. The bank has targeted to recover at least Rs 8,000 crore every year and in Q1, we were able to recover Rs 2,008 crore, meaning it is well on track to achieve the recovery target. The bank has around Rs 23,000 crore accounts in NCLT and due diligence is underway in eight accounts in the NARCL.
What is your outlook on credit growth for FY24?
It is a good time for the banks as they will get more chances for providing advances. In the beginning of the year, we said that on the credit, we will grow by 10% to 12% and we have ended the first quarter with 13%. There are huge opportunities in the housing finance sector, auto and personal loan segments. On the corporate front, there are opportunities in cement, steel and city gas distribution segments. We still have Rs 9,500 crore to Rs 10,000 crore in the pipeline in the corporate segment.
How well is the bank capitalised?
We are well capitalised now. We had a capital adequacy ratio of 15.78% in June 2023 and if you add the profit of Q1, it will be at 16.30%, against 11.50% of the RBI mandated requirement. At the same time, we are having an approval for raising Rs 4,000 crore. If the opportune time comes and we need money, we will go for raising capital.
How has been Indian Bank‘s gold loan portfolio, which has become major thrust for many of the banks these days?
We have created 650 gold shops and are doing gold business across 2,000 branches. The bank’s gold loan portfolio stands at Rs 65,000 crore. We have been doing this business for many years for now and developed expertise on this. We are having independent accessors, in-built controls and other checks. In addition to this, we also have SHG (self-help group) business where we have been witnessing healthy growth.
What is the status on floating an operational subsidiary?
We have received the RBI approval and have floated an RFP (request for proposal). We have finalised a consultant as well and in the next three to four months, we will make it official. We will be entrusting some back-office operations, marketing activities and compliance issues to the new entity. It will be a separate company run by separate management and we will give them the work, so that the bank could focus more on its core business.
What are the initiatives on digital front for making the bank future-ready?
We will be making an overall investment of around Rs 1,500 crore between FY22 and FY26 for our digital programmes. The initiatives will focus on both core-banking side and customer-centric front. The third initiative will be on the cyber security side. On the core-banking side, we have started Middlewear, where you can integrate with anybody. For the horizontal expansion you need to have Middlewear. We have also started our omni-channel platform, where the customer can get the same branch experience on their mobile. Currently, 85% of our transactions are happening through digital channel. For the past one year, we have focused on mobile banking and today have 1.3 crore mobile banking customers.