Now that IDBI Bank is out of the restrictive prompt corrective action (PCA) framework, it will grow its loan book in a calibrated manner to avoid concentration risk, according to its MD and CEO, Rakesh Sharma.
Though the bank’s growth was shackled due to the PCA framework, which was imposed by the RBI in 2017 in view of its high non-performing assets and negative return on assets, Life Insurance Corporation of India (LIC) threw a ₹21,624-crore lifeline to the bank in FY19.
In an interaction with BusinessLine , Sharma emphasised that the bank is on safe ground. In the context of the government’s plan to divest 45.48 per cent stake in the bank, he observed that employees need not worry vis-a-vis this development and should only focus on performance. Excerpts:
What does coming out of PCA mean for the bank?
First, let me tell you the disadvantages of being under PCA. Our balance-sheet size was shrinking. We were not able to grow our corporate advances, including loans to ‘AAA’ and ‘AA’-rated corporates. As business was coming down, our revenue was also coming down. We were not able to open branches. It is not that we want to be very aggressive.
But yes, so many restrictions were there. Even for small expenditure, we had to take rgw RBI’s approval. All this was basically hindering the growth of the bank.
But we have been able to stop the slippages to a large extent. We have also done recoveries and our provision coverage ratio (97 per cent) is quite high. In the last four years, we have worked on our risk management policies, corporate governance, and internal housekeeping. We have been able to improve upon them.
Now that we are out of PCA, we will be free to do any type of business. But learning from the past, we will avoid concentration/ overexposure to certain industries. We will try to grow our business in a very calibrated way so that we are able to increase the income and improve our efficiency parameters.
Now that you are out of PCA, will you be changing the retail to corporate loan mix?
Earlier, we were a corporate bank. So, corporate loans accounted for 67 per cent of our total loans in Q4 FY16. As of now, corporate loans account for only 40 per cent of our total loans. So, 60 per cent of our loan book is retail. As per our board-approved policy, our target is that more than 55 per cent of our total loan book should be retail and 45 per cent corporate. We want to maintain low-cost deposits, which was at about 49 per cent of total deposits in Q3 FY21, at about 47-48 per cent.
We will grow our loan book at about 8-10 per cent in FY22. Next year, we want to increase our net interest margin beyond three per cent (2.79 per cent in Q3 FY21). Our target for RoA, which, in December 2020 quarter was 0.51 per cent, is to take it 0.60 per cent next year and gradually increase it further.
We want to focus more on lending to selective industries and not just infrastructure. So, manufacturing will be our major focus where good securities are visible. We will also take selective exposure to infrastructure projects, but in a calibrated way. Right now, our standard advances are at ₹1.20-lakh crore. Our corporate advances are at around ₹48,000 crore. In FY22, we are envisaging more than 12 per cent growth in retail loans, but in corporate loans the growth will be 8-10 per cent.
Will you be expanding your branch network?
We have not expanded our branch network in the last four years. We will not be very aggressive on this front. If we feel that in some area our presence is not there, then we can open branches. But in these days of digital banking, Business Correspondent and Business Faciliator networks, brick-and-mortar branches are not required.
So, we will be depending more on these alternative channels. But yes, there is no restriction as such on branch opening now.
Our cost-to-income ratio was 57 per cent as of March-end 2020, and in the third quarter of FY21 it was around 52 per cent. So, although we have been able to control our expenditure, the denominator (income) was not increasing. Our target is to bring this ratio below 50 per cent by March 2022. So, while we will keep the cost under control, we will push up the income.
Will depositors’ perception about IDBI Bank not change once the government sells its stake in the bank?
Customers, especially depositors, can draw comfort from the fact that now our capital adequacy ratio is 14.77 per cent; we have earned profit continuously for the last five quarters; and other ratios such as liquidity coverage ratio are much above the RBI’s norms.
So, the comfort we can give to our customers is that we will be improving the performance of our bank in such a way that it becomes sound. There are private banks that are sound. Our customers will have the comfort that we will become one of the good and sound banks.
How are you addressing employees’ anxiety regarding the government selling its stake in the bank?
Our employees were also anxious when LIC was taking 51 per cent in our bank. There were court cases also. But finally, our bank won…I conducted town halls in almost all the big cities where I addressed the employees. I reached out to all employees by writing to them that they should not worry.
Ultimately, every promoter wants good workers/ performers. So, we have to focus on performance….It is not as if with a new promoter everything is going to change. Work/performance related incentive will be there...I have been giving this message that they need not worry. They have to focus on performance.