Despite the headwinds prevailing in the market, South Indian Bank is eyeing a double-digit growth in the coming fiscal as well with a clear focus on quality business.
“At the same time, we are concerned over the current developments in the economy, especially in terms of the fallout from the Russia-Ukraine war, inflation, and liquidity crunch. What we see is pretty good for us. Overall, the recovery collection has been improved with a declining trend both in gross and net NPA’s, said Murali Ramakrishnan, the bank’s Managing Director and CEO.
In a chat with businessline, he said, “We will continue to focus on quality credit. Our projection for the loan book increase at the end of March 24 will be 12–13 per cent.” Edited excerpts follow.
Where do you see the growth mainly coming from?
We are expanding product segments to Commercial vehicles, Construction Equipment, LAS, auto-finance, and PL on credit cards as some of the new products in the coming year. We expect these multiple initiatives to add to the overall growth. The goal is to create a high-quality book growing at a reasonable pace without losing sight of profitability.
Are the interest rate hikes hurting credit growth, especially retail book?
Going by RBI data, the credit growth of the banking sector is showing a slight moderation after the peak seen in October 2022. More than the rate hike, liquidity is a major factor that will be driving credit growth going forward. In the case of retail loans, the majority of the rate hike is passed on to the customers.
As most of these loans are linked to the external benchmark, it is important to note that the credit growth has outperformed the deposit growth in this fiscal, creating a strong need for deposits.
Is there any stress growing in loan book since the turning of interest rate cycle?
We are continuously churning our advance book and currently, it stands at ₹37,748 crore- approximately 54 per cent of the total book with a GNPA of 0.06 per cent and SMA2 of 0.22 per cent.
We are monitoring the newer portfolios to look for any impending stress to take timely action if needed. The legacy loan book has been facing some stress for the past few years, so has the restructured book. However, the guidance given on slippages from the overall portfolio as well as for restructured book has been holding till now.
On the growth in wholesale loan book…
Our corporate loan book has been growing and now accounts for around 31 per cent of our total loan book. We are adding more `A’ and higher-rated corporates to our portfolio. We expect huge investment in the pipeline which is going to come from both the private as well as from the government. We will see good investments coming in the corporate area and have more opportunities coming up from these segments. Hence, we expect the corporate loan book to grow steadily in the coming years.
When it comes to short-term funding for large corporates, we use that opportunity as a strategy to get a foot into the large corporate and then explore other opportunities for lending such as supplier finance and retail loans.
On the deposit growth through this interest rate cycle….
The deposit growth has been consistent. We are growing deposits in line with credit growth. NRI deposits also contribute to the total deposit growth. We also have a good liability franchise.
What actions have been taken to improve balance sheet quality?
Balance sheet quality has improved in three major areas: Quality sourcing, Quality underwriting and improved collection and recovery. Towards quality sourcing, we had formed clear credit policies apart from aligning them with the industry norms. We had also arranged focused sales training modules for our sourcing team.
With regard to quality underwriting, we built credit models using external agencies and bureau data. Later, these models were back tested with our legacy good and bad book and customised suiting to our risk appetite.
We also set up a Credit Middle Office Group to continuously monitor the portfolio and identify cases to be grown, retained or reduced, based on credit appetite.
We improved collection and recovery efforts by deploying experts to work closely with external collection and recovery agencies, especially for retail cases.