With the announcement of measures to infuse liquidity into the banking system, cost of borrowings is expected to come down, says Binod Kumar, managing director and CEO, Indian Bank. In an interview with Anupreksha Jain, he says with moderation in interest rates, the CASA ratio is expected to improve.
What is the guidance on net interest margin (NIM) for FY25? If the RBI goes for a rate cut, how do you see it impacting the NIM?
Our guidance for NIMs is between 3.40% and 3.50%. Certainly, there will be some impact of the rate cut, but 57% of the bank’s book is linked to the marginal cost of funds-based lending rate (MCLR) and 37% is linked to the external benchmark lending rate (EBLR). We have provided enough cushion against any cut in the policy rate. As moderation in interest rates is expected after the rate cut, the current account and savings account (CASA) ratio will improve as the differential between term deposits and CASA is likely to come down.
How do you see RBI measures to address the liquidity crunch in the system impacting the bank?
The measures taken by the RBI will have a durable impact on liquidity, and once conditions ease out, we may see a significant fall in the cost of borrowing, especially rates on short-term borrowing instruments such as certificates of deposit.
Have deposit rates and credit rates already peaked?
I expect the divergence between credit and deposit rates to further narrow because of the slowdown in the credit growth. Generally, the system-level demand for credit is driven by unsecured loans, financing to microfinance institutions, credit cards, etc. All these sectors have started to moderate. Also, government spending on infrastructure is not seen as much as it was.
What are your recovery targets for the full year? Any borrowing plans?
We have already achieved Rs 5,800 crore in recovery. We will be able to achieve the guidance of Rs 7,000-8,000 crore. We are planning to raise funds by issuing infrastructure bonds. The timeline is not yet decided. We will enter the market when we feel the pricing is appropriate.
Your views on draft guidelines on liquidity coverage ratio (LCR) norms, expected credit loss (ECL) and project finance.
There has been a lot of buzz in the market about these guideline, but we don’t know when these will be implemented. Our LCR is around 125% and when guidelines will be implemented, it will fall by 8-10 basis points. But we will still be comfortably above the threshold requirement of 100%. On ECL, banks have already increased provisions, so the challenge will not be huge. As far as project finance is concerned, around 5-6% of the portfolio will be impacted.
Have default rates for loans sanctioned under government schemes fallen? What about default rates in infrastructure loans?
Over a period of time, the default rate has significantly fallen. Even for MUDRA loans, NPAs have substantially come down. The primary reason is that people have become concerned about their CIBIL score, so they don’t delay repayments. As far as infra loans are concerned, with the introduction of the hybrid annuity model, contractors give their provisional commercial operations date so that the annuity can start. This is the reason we are seeing minimal default in these loans.
Personal loan book saw a de-growth. What’s your outlook on it?
We have adopted a conservative approach towards personal loans. The total personal unsecured loan book is of Rs 9,700 crore. Of this, salaried individuals or pensioners account for Rs 6,000 crore. We have completely shut down our online model – pre-approved personal loans.