Now that you are out of the PCA framework, what kind of opportunities does it really open for you as a bank?
First of all, I am quite optimistic that coming out of the PCA framework will unlock many opportunities for us. It should be business as usual now. Now we would be able to do business as per the policies approved by the board. In the previous years, when we were also doing a little bit of development banking business, we were quite aggressive on infrastructure and power companies. Now we will be careful and take only selective business. So focus will continue to be on retail but it will help us improve our revenue which was declining over a period of time. Despite better performance and despite increase in operating profit, our efficiency ratios were not improving to that extent.
Are you saying that going forward, the tilt would be more towards growing your retail loan book as opposed to corporate?
Yes, of course! Already during the last almost three and a half years when we were under PCA, the focus was on growing retail business because there were no restrictions on retail meaning MSME agriculture and loan against properties and home loans. The focus is now on the ratios around four years back. The corporate business was 70% and the retail was only 30%. Now, retail has become 60%. So the same focus will continue but so far during the last four years, we did not grow in corporate business at all but the fact that there were high NPAs in corporate advances does not mean that we do not have the expertise.
IDBI Bank has expertise in doing corporate business too but due to over exposure in certain types of industries, the bank had to suffer. That expertise will be used and we propose to grow 8-10% in mid corporate and large corporate loans but the focus will be on mid corporates only. Similarly, our retail portfolio should always be above 55% but in any case, 60% will be preferable.
Do you have sufficient growth capital for branch expansions and other things? Are there any plans for capital raising on the debt or equity side? Your CAR stands at about 14.7% as of December.
Yes, we have sufficient growth capital. It is 14.77% as of now and in addition we have earned around Rs 847 crore profit during three quarters. That will be added at the end of the financial year and the capital adequacy ratio will further improve.
Once we are out of PCA, efficiency ratios start improving further and the rating will also improve and we have the option to raise tier one and tier two capital. At the same time, we had recently raised around Rs 1,435 crore via QIP. LIC has a commitment to maintain their share at 51%. So far, we have not drawn capital from LIC and around Rs 1,500 crore will come from them. So we will continue to do capital light business and the focus will be on the high rated clientele. So, capital should not be a problem going forward.
Reports are suggesting that LIC may consider an exit before the government’s exit or along with it. Does that pose any challenge to sentiment of depositors?
We have already been classified as a private banking house since LIC has taken 51% share. Now as far as dilution of stake by LIC or Government of India is concerned, this decision will be taken by the owners themselves — LIC and DIPAM. I would not like to comment on that. But yes, we have to focus on performance. The capital adequacy and other efficiency ratios of the bank are quite healthy and during the last one year, we have been improving the performance.
In the coming years, when we start doing business as usual, the revenue will start improving. Already we have brought our slippages under control. The PCR, provision coverage ratio is 97%. All these factors will further contribute to improving the performance. Our depositors will go by the performance of the bank. Despite the fact we were under the PCA for the last three years — and the first two years were really tough — we never saw any flight of deposits from our bank. Whenever our deposits have come down, it is something that we have done intentionally as per our approved plan. The bulk deposits were around 30% and we brought them down to below 15%. So bulk deposits have been reduced by Rs 50,000 crore during this year because these were high cost deposits. But CASA deposits, our retail term deposits have seen steady growth. We have not seen any flight of business. So the bank is in a strong position. The customers have a lot of faith and trust in our bank. I do not see any problem there.
A lot of SMEs and MSMEs got a life line from the government because of Covid and that got extended. Soon IBC will start getting implemented and the credit guarantee schemes will run their course. Will that impact some of the SME and MSME loans?
As the cash flows of the MSMEs got affected by Covid, the government had taken a proactive decision and started the special guarantee scheme. We also disbursed loans of about Rs 1,000 crore and had given a moratorium. That deferred interest we are being able to recover and in MSMEs are also seeing an improvement in cash flows.
I do not feel there will be any problem in recovering those loans which are given under that special guarantee scheme. So the efficiency ratios post Covid — both in MSMEs and retail — is more or less coming back to the pre-Covid level. Some stress may continue for another five to six months but not to that extent and for that one, we have enough Covid provisions and despite the fact that there is a stay from the Supreme Court on classifying the accounts as NPA, we have parallelly run that. All the banks have done it. We have made sufficient provision for that but I do not see much slippages on that count. The industry is recovering now and things are coming back to normal.
I understand that a lot of businesses that come to IDBI Bank are state business and the central government business. Now that the central government is looking at opening up to the private sector, could that start impacting your government business and total profitability?
No. During this period also when we were classified as private, we were doing government business. But I can clarify one thing. We have been doing good government business but at the same time, it is not the only income generating source for us because the income is reasonably good. Now that the government has announced in the Budget that they will be going for privatisation. now the government business will also be done by the private banks. IDBI Bank was already doing that and we will continue to grow. So, permitting that business is not going to create much additional income for us because we were already doing it and so it is not going to make a dent in our income also.
The usual 10% growth in government business will continue. Apart from that, other fee based income will resume. During the PCA regime, even our good customers had stopped doing bill discounting business with us. Once we are out of PCA, bill discounting and other businesses will grow at a good pace and help us increase our revenue.
