Spike in credit demand from corporate, RAM segments: Indian Bank MD & CEO

In a Q&A, Shanti Lal Jain talks about recovery in demand, bad loan trends and the status of Covid recast

With the economy on the recovery path, Chennai-based Indian Bank is expecting key credit demand from the retail, agri and micro small and medium enterprises (RAM) segments to pick up. Shanti Lal Jain, managing director and chief executive officer of the bank talks about the recovery in demand, bad loan trends and the status of Covid restructuring, in an interview with Shine Jacob. Edited Excerpts:

1. Are you seeing corporate credit demand picking up? With the rise in bond yields, are more corporate in discussions with banks?

Corporate credit has seen some improvement. In the last quarter, we have added around Rs 3,000 crore. The bank has seen a growth of 11 per cent in the Retail, Agri and MSME (RAM) segment, driven by 13 per cent rise in retail, 14 per cent in Agri and 6 per cent in MSME. Our RAM advances to total advances has increased to 61 per cent.  We are receiving proposals from sectors like roads, cement, textiles, steel and non-banking financial companies.

In the infrastructure segment, we are aggressive on HAM (hybrid annuity model) projects, as the traffic risk is assured by NHAI (National Highways Authority of India). Besides this, NHAI provides grants on achieving pre-defined milestones.

Borrowers come to us for meeting their working capital and capex needs. We are in discussion with corporate for availing facilities as the bond yields are rising. Our outstandings under corporate bonds and others have increased by Rs 1,340 crore, from Rs 10,912 crore in September 2021 to Rs 12,252 crore in December 2021.

2. How do you see the trend in bad loans?

Our collection efficiency is showing an improving trend, that is, from 88 per cent in March 2021 to 90 per cent in June, 93 per cent in September and to now 94 per cent in December 2021.

The SMA 1 and SMA 2 (special mention accounts) of the bank have come down to 6.41 per cent in September 2021 to 5.01 per cent in December. The stress in the corporate segment has come down significantly, and in MSME loans, stress has come down slightly but still remains at an elevated level.

The slippage in the quarter ended December was Rs 2,700 crore of which Rs 955 crore in the corporate segment. Out of Rs 955 crore, Rs 385 crore pertains to two accounts that were NPA (non-performing asset) but classified as standard due to a Court Order. After vacation of stay, we have classified these accounts as NPA. However, the bank was already having provisions under standard assets. For the remaining Rs 500 crore, one account in the road project, where recovery is expected from NHAI as the borrower has exercised termination option. In other accounts of Rs 250 crore, we expect recovery soon.

The other major slippage in the MSME amounting to Rs 896 crore, the part of which is from the restructured book. In retail, the slippage was Rs 600 crore, wherein Rs 250 crore from education and Rs 250 crore from home loans. In housing, the loss-giving default will be less as the loans are secured. Under education, we expect to recover from the borrower on getting employment.

3. How are you seeing the rate environment? Is there are increased pressure on you?

The bank’s LCR (liquidity coverage ratio) is around 187 per cent in December 2021 indicating adequate liquidity and thus, we have not raised the interest rate till now. However, going forward decisions in the is regard will be taken based on liquidity and market trend.

4. Can you throw some light on your Covid restructuring status and risks attached to it?

Our restructuring book is Rs 20,362 crore, of which Rs 8,140 crore is in SMEs, Rs 8,062 crore in retail, Rs 1,132 crore in agriculture and Rs 3,028 crore incorporate. In retail and corporate segments, regular repayments are observed barring in a few accounts. In MSME, slippage from the restructured books was around Rs 500 crore. This portfolio is being monitored continuously. Further, with the opening of the economy and increase in demand, we are hopeful for recovery from the restructured MSME book as well.

5. How is the synergy working out, post amalgamation with Allahabad Bank?

With amalgamation, the bank has become the seventh-largest PSB with an increased customer base and strong presence penetrating throughout the country. We have also rationalised around 264 branches for cost and operational efficiency, giving thrust to increased revenue and profitability. Increased business and profitability show that the synergy has flown in the Bank.

6. What is your digital roadmap going ahead?

Our digital transactions increased from 64 per cent last year to 76 per cent now. Our mobile banking and Internet banking and UPI transactions are showing a healthy increasing trend. Further for onboarding the customers on the liability side, we have recently launched tablet banking wherein Accounts can be opened instantly.

Further through our analytic modes, we are generating leads based on the transaction in the Account for acquiring retail business. For the digitization of our lending portfolio, we have roped in BCG as a technological partner.

7. What were the major drivers for you during the current quarter? Was there pressure on you because of the third wave?

The third wave has not affected the business much. We have learnt to live with the pandemic and most of the citizens have already got the first or both doses of vaccination. During the third quarter, the growth in our operating profit was 16 per cent on the back of Net-Interest Income growth of 2 per cent and Non-Interest Income growth of 36 per cent.

Our total fee income has grown by 11 per cent, Forex income by 32 per cent, PSLC commission by 47 per cent and recovery of bad debts by 111 per cent, resulting in 36 per cent growth in total non-interest income. And operating expenses growth is only two per cent. Accordingly, our operating profit was better and our net profit also saw a 34 per cent rise.