A Stable Bank with Reliable Resources Can Sustain Growth More Effectively: Indian Bank MD SL Jain

In the corporate segment, slippage is confined to textiles and educational institutions. But none of them are large exposures, said Indian Bank MD

Pushpita Dey

Updated on: 30 October 2024 3:51 pm

Shanti Lal Jain, MD & CEO of Indian Bank

In an interview with Outlook Business, SL Jain, managing director and chief executive of Indian Bank talks about how the bank has managed to maintain sustained deposit growth and cut slippages.

A sharp rise in non-interest income and a reduction in slippages has helped Indian Bank report a 36 per cent jump in net profit in the second quarter of the 2024–25 fiscal year. In an interview with Outlook Business, SL Jain, managing director and chief executive of Indian Bank talks about how the bank has managed to maintain sustained deposit growth and cut slippages.

Indian Bank recently raised a lot of money via long-term infra bonds. What sort of infra projects are you planning to finance?

Follow our WhatsApp channel

We have raised a total of Rs 10,000 crore in two Rs 5,000-crore tranches. Our infrastructure book currently stands at Rs 55,000 crore.

These funds can be deployed for both additional lending and for refinancing existing debt. In the current structure, the funding is fungible. It can be directed towards infrastructure as well as other sectors, aligning with considerations around cost-efficiency, liquidity, liquidity coverage ratio and overall availability.

Additionally, our existing portfolio includes a substantial pipeline with partial disbursements underway, and we anticipate future disbursements worth approximately Rs 18,000 crore, encompassing road infrastructure, hospitals, educational institutions and power projects.

The slippage ratio was at 1.06% in September 2024 compared to 1.77% in September 2024, showing a slight decline. Which sectors are continuing to see slippages?

Total slippage [at Indian Bank] was Rs 1,357 crore. Of this, approximately Rs 120 crore is attributed to retail segments, including housing and education. In the agriculture segment, nearly Rs 500 crore out of a total of Rs 681 crore is related to Kisan Credit Card (KCC) accounts, while the remaining pertains to allied sectors such as fisheries. The MSME segment saw slippage of Rs 100 crore.

In the corporate segment, slippage is confined to textiles and educational institutions. But none of them are large exposures.

Read: Rate Cut Will Have A Balancing Impact on Both Deposit and Credit Growth, Says Indian Overseas Bank CEO

Have you identified any big loans that may need to be transferred to Asset Reconstruction Companies (ARCs) soon?

The bank continues its efforts to identify non-performing loans for ARCs. Several accounts have been earmarked for potential sale to the National Asset Reconstruction Company (NARCL) from which we have received bids of approximately seven accounts totaling Rs 700 crore.

A Swiss challenge auction will be conducted and the entity that offers the highest bid will secure the sale. This approach will allow us to maximise recovery from these assets.

There is no specific sector that is targeted for the identification of non-performing loans. Often, due to the presence of multiple lending banks on the same accounts, individual banks cannot unilaterally decide on a sale, unless they hold exclusive security on the assets. Usually, a collective decision is made among banks to proceed with sale to NARCL or any other institution.

There are reports that suggest that banks need to rely on more short-term debts. What is Indian Bank’s perspective on this?

There may be an argument that banks should opt for short-term debt in a declining interest rate environment, as this approach minimises repricing risk. This rationale suggests that short-term borrowings may be advantageous under the current market conditions.

However, from a bank’s perspective, stability is paramount. A stable bank with a reliable and consistent resource base can sustain growth more effectively. Our bank exemplifies this stability, with a substantial customer base that consistently supports our deposit growth.

Typically, our depositors prefer one- to two-year terms, which are not excessively long term. This helps us expand in a steady manner.

How do you plan to sustain deposit growth and overall cash flow once RBI starts cutting rates?

Regarding a potential rate cut, there are two aspects to consider: the deposit side and the credit side. Generally, the impact of a rate cut is felt first on the asset side rather than on the liability side. Specifically, any reduction in the repo rate will lead to a corresponding decrease in loan income, which will directly impact revenue.

On the liability side, we align with market rates and raise funds as needed. However, on the asset side, a rate cut will naturally reduce income. Presently, around 58 per cent of our loan portfolio is linked to the marginal cost of funds-based lending rate (MCLR), while approximately 35–36 per cent is tied to the repo rate.

Therefore, a rate cut will immediately affect 36 per cent of our portfolio. Navigating rate cut cycles is an integral part of managing a bank’s financial health.