Rate Cuts Will Affect Both Deposit Growth And Credit Growth, Says Indian Overseas Bank CEO

Yes, rate cuts will affect both deposit growth and credit growth. When the Reserve Bank of India (RBI) reduces the repo rate, it will immediately impact the loan portfolios for retail and MSME (Micro, Small and Medium Enterprises) segments, which are linked to external benchmarks. Other portions of the credit portfolio will also be affected, albeit with a lag, as the Marginal Cost of Funds-based Lending Rate (MCLR) will also decline. 

Since the impact on both credit and deposits occurs with a delay, I don't foresee any significant challenges. The effects will be almost uniform on both sides, allowing banks to maintain their margins. Growth will continue even at reduced rates because the entire ecosystem functions in this way; it cannot be viewed in isolation. 

As the interest rates on credit decrease, deposit rates will also be adjusted downward, thereby ensuring that margins are preserved. 

Transferring loans to Asset Reconstruction Companies (ARCs) is a standard part of our business strategy. At the beginning of this financial year, specifically in April, we offered 92 accounts amounting to nearly Rs 13,000 crores for sale to ARCs. Several ARCs expressed interest, and we have successfully sold a portion of that pool to various companies. 

This process is ongoing and is an integral part of our recovery activities. We are currently in discussions regarding some accounts with different ARCs. 

At least, bad loans are not piling up. For IOB, our total credit portfolio stands at Rs 2,30,000 crores, and the slippage for this quarter is only Rs 251 crores. In the previous quarter, it was around Rs 300 crores. Therefore, I do not see any significant buildup of bad loans within our credit portfolio. While there may be normal stress in certain accounts, there is no specific area, geography, or product that is experiencing notable stress. 

We have established a dedicated startup branch in Chennai, which has been performing exceptionally well. In just four months since its inception, the branch has been able to do over Rs 30 crores in business and onboarded more than 70 new startups. We are currently engaged in discussions regarding their credit needs and other banking requirements, including equity infusion. 

This branch has proven to be highly successful in supporting budding entrepreneurs. Looking ahead, we plan to open at least five more startup branches across different regions of the country next year. We are committed to identifying areas where startup ideas hold value and providing the necessary support and financial assistance to these entrepreneurs. 

We have a board-approved policy regarding green financing, and to meet our requirements, we have initiated a green deposit scheme. This involves mobilizing deposits by offering incentives, and the funds raised will be allocated to green financing projects. Although we have recently started this initiative and are still waiting for tax details from the government, we are fully prepared to effectively manage this sector. 

While it may be challenging to specify our parameters (to identify ‘green’) at this moment, we are primarily focused on renewable energy projects, such as solar energy, which is the most commonly utilized. We have also entered into an agreement with the Indian Renewable Energy Development Agency (IREDA), which is the government’s arm for renewable energy. We are collaborating with them and adopting the products they have outlined and categorized as suitable for green financing. Although this initiative is still in its early stages and not yet fully stabilized, we have already taken significant steps in this direction.