Indian Bank has witnessed growth in income streams as well as higher cash recoveries in FY22. Shanti Lal Jain, MD & CEO, tells Sajan C Kumar the bank is looking to expand its RAM segment further by leveraging its branches, tying up with NBFCs for co-lending and introducing end-to-end digitisation for MSME and retail products. Excerpts:

Indian Bank reported a 34% y-o-y jump in net profit in the third quarter, mainly on account of higher income and cash recovery. Do you think the momentum is sustainable?

This was made possible due to an increase in net interest income and growth in non-interest income in segments like fee income, forex income and PSLC commission, besides higher recovery of bad loans. We have grown by 11% in the RAM portfolio wherein the retail book grew by 13%, agri by 14% and MSME by 6%. We have a well-diversified loan book with a 61: 39 mix between retail and corporate loans.

How do you plan to push overall credit growth and business generation in FY23, given that the merger with Allahabad Bank has made you a stronger entity?

In FY23, we will seek to grow the RAM (Retail, Agriculture and MSME) segments by leveraging our branches, tying up with NBFCs for co-lending and widening our reach through end-to-end digitisation of MSME and retail products. We will also focus on driving the business through the use of analytics. We are making efforts to build our brand, strengthen the credit quality by centralising processes and reduce the TAT. We have heightened our focus on investment credit, especially agro-processing and value chain financing, and agri-jewel loans are being aggressively marketed through specialised agri-jewel shoppe branches. For the MSME sector, the bank has tied up with start-up incubation centres promoted by reputed institutions like IITs and IIMs to finance start-ups. We are also looking to increase corporate credit to existing customers as well as new ones in major sectors like road, steel, textile, cement, power, gas and NBFC.

While RAM constitutes the larger chunk now, are there any plans to grow your corporate share given the government’s focus on infrastructure?

Yes, we do intend to grow corporate advances. For this we have reoriented our strategies, with a network of large corporate and mid-corporate branches in place to drive the business. We have set up nine LCBs and 17 MCBs across the country, which are focussed on large- & mid-corporate credit. We have also created a sub-vertical within our corporate credit segment to concentrate on CMS and the forex business of corporates and gain a larger wallet share. With the government promoting renewable energy, manufacturing, EPC and IPP are important sub-segments in this sector for us.

Would the bank be interested in consortium-led lending to large corporates? If so, what kind of safeguards would you be looking at while granting big-ticket advances?

The merger with Allahabad Bank has increased the size of our balance sheet and granted us a sound capital base, boosting our risk appetite. Since large projects are generally being financed through the consortium/multiple banking route, our aim is to have the larger share in a consortium and have the operating account with us, taking a leadership position and underwriting & down-selling to increase our interest and fee-based income. We are engaging the services of Lender Independent Engineer, ASM and other reputed companies for TEV work.

How is your asset quality now, and what is the recovery you are looking at by the end of the current fiscal year?

The asset quality of the bank has been improving on a quarter-to- quarter basis. Collection efficiency has shown month-on-month improvement, reaching 94% in Dec’21, as against 88% in Mar’21. With the gradual improvement in the economic situation, we expect total collection efficiency to go up further. Our SMA book has been decreasing steadily. While SMA 1 & SMA 2 was at 9% in Mar’21, it came down to 5% in Dec’21. GNPAs have reduced from 9.85% in Mar’21 to 9.13% in Dec’21. Likewise, net NPAs fell from 3.30% in Mar’21 to 2.72% in Dec’21. The total recoveries in the first nine months of the fiscal were at Rs.6,470 crore, as against Rs.2,677 crore in the corresponding period of the previous year.

How many accounts have you identified for transfer to the National Asset Reconstruction Company Ltd (NARCL), or the bad bank? Has Indian Bank taken equity in NARCL?

Five NPA accounts with an outstanding balance of Rs 1,181.13 crore have been identified for transfer to NARCL in the first phase and nine accounts with an outstanding of Rs 1,708.65 crore will be transferred in the second phase. The Indian Bank has invested Rs 19.80 crore as equity in NARCL and Rs 9.90 lakh as equity in IDRCL.

What is the bank’s capital adequacy ratio? Are there any plans to raise equity from the government or debt from the market?

In June 2021, we raised equity capital of Rs1,650 crore through a QIP. As a result, the Government of India’s (GOI’s) shareholding has come down to 79.86% from 88.06%. The capital adequacy ratio of the bank stood at 15.47% as of December 31, 2021, with CET 1 Capital at 11.38% and Tier 2 Capital at 3.44%. After adding the profits of the nine months ended December’21, the CRAR is at around 16.50%, as against the requirement of 11.50%. We are comfortable on that front for now, with an adequate capital cushion to meet our growth needs. We also have the board’s approval for raising AT1 or Tier 2 capital of up to Rs3,000 crore. We will make a call on raising capital from the market at an opportune time, keeping market conditions in mind. Since we can raise capital from the market, we are not looking for any capital support from GOI.

Are there any plans to ramp up digital banking channels further? Any new products planned for the same?

In Q3FY22, 76% of the bank’s transactions were carried out through digital/ATM channels. The transactions through digital channels have increased by 8% QoQ and by 20% on a y-o-y basis. We are aiming at 85% migration to digital/ATM channels in the near term. Our mobile banking user base is around 65 lakh and growing at 26% on a y-o-y basis. The net banking user base is around 63 lakh and growing at 22% YoY. UPI registration is growing at around 40%, while the debit card base has grown by around 10%, reaching 2.65 crore as of December’21. The bank has been continuously adding new products and upgrading its existing digital products to enhance customer experience.

How do you plan to grow CASA? What about network expansion?

The bank is increasing the retail customer base in order to achieve sustainable CASA growth. We have equipped our branches with new technological tools like TAB banking to ensure that all channels for on-boarding of customers are in place.

In the last financial year, we focused on rationalisation of branches to reap the synergy benefits arising out of the merger. We are now in the process of identifying centres which could offer quality business and boost our growth prospects. In the ongoing financial year, we have approved 56 new locations where we will be opening branches.