IDBI Bank’s focus will continue to be on CASA deposits and retail term deposits: Rakesh Sharma
BCCL
Synopsis
“Next year, we expect around 10% growth both in retail and mid and large corporates.”
By ET Now
“As far as NPAs are concerned, we are expecting reduction and by March, we expect that from 20%, it will come down to below 17%. The asset quality is quite stable and is likely to improve further,” says Rakesh Sharma, MD & CEO, IDBI Bank.
These levels are very much sustainable. Despite the Covid situation, the collection efficiency has improved to 96% and the SME level also from 3.86% in September has declined to 3.53%. We are quite sure that we will be able to maintain this asset quality as far as net NPAs are concerned. As far as NPAs are concerned, we are expecting reduction and by March, we expect that from 20%, it will come down to below 17%. The asset quality is quite stable and is likely to improve further.
What is the outlook when it comes to advances because there has been muted growth in the advances this time around. What is the outlook when it comes to overall credit growth? Going forward, do you think it will continue to remain muted for even FY23?
The bank was placed under PCA for almost four years and during that period we were growing only in retail advances. This time the retail has grown YoY by 5%. Yes the growth has not been to that extent as we were expecting, but one good thing which we have seen this quarter is that with corporate growth, which was there almost four years, we were showing negative growth. This quarter, we have shown YoY growth of 12% in mid corporate and that is our focus area also.
In the March quarter also, we will be able to show some reasonably good growth in a very calibrated manner. Next year, we expect around 10% growth both in retail and mid and large corporates. In fact, in mid corporates, during the previous periods, when we were not able to take our share in consortium advances, where good advances have started taking share. We expect that good growth will happen but we will be quite careful about the quality of advances so that the situation we had faced earlier, will not recur.
We have seen a 50% plus jump when we look at the bottom line too. But what the markets will want to know is where are we when it comes to the sale of IDBI Bank? There are reports about how that will happen after the LIC IPO and about how the RBI has been approached for a relaxation when it comes to promoter entity post the sale. Any update on that?
Yes, in fact, the entire process of disinvestment is being handled by DIPAM department and when we had spoken last time, we had indicated that KPMG had already been appointed as the transaction advisor. The LIC IPO also is being overseen by them. That is a separate issue but as far as IDBI disinvestment is concerned, the transaction advisors have been appointed, the process will be speeded up and it will be resolve soon. But yes, the latest developments will be given by DIPAM only.
You said you are confident that the entire process could be expedited, transaction advisors have been appointed, KPMG has been brought on board any timeline, because DIPAM cannot do it alone without having the bank and the knowhow to write?
Thank you. Wherever our involvement is needed, we will certainly be involved. The overall decision will be taken by DIPAM and when the roadshow starts or when the discussion starts, we will certainly be involved. To that extent, we will be performing our role but overall decisions will be taken by them.
As I had indicated earlier, my focus will be to improve the performance of the bank in the coming years. We have totally come out of those old issues. All problems are mostly resolved and the Covid situation is also getting stabilised.
The number of cases are reducing and next year’s performance should be much better than this year’s performance. So, if we are able to improve the performance, it will help DIPAM to do it fast and get good valuations.
In Q3, the total deposit stood at about Rs 2.2 lakh crore. That is down at about 0.8% on a year on year basis. What is the outlook on your cost of deposits? How do you see the bank’s deposit base going forward and what will be your strategy to lower the bulk deposits’ share?
Earlier, the bank was totally dependent on bulk deposits. The CASA ratio around three years back used to be in the range of 34-35%. Our CASA ratio has increased to 54.69%. It is one of the highest in the industry and the cost of deposits from September 30 to December 31, has reduced to 3.50% from 4.18%. Similarly, cost of funds has also declined from 4.39% to 3.79% – almost 60 bps. So that way, the focus will continue to be on CASA deposits. My savings bank is quite stable and has shown YoY growth of 14%; my current account has also shown growth of almost 5%. We have been strategically reducing the bulk deposits because these are interest sensitive deposits. The major focus will continue to be on CASA deposits and retail term deposits.
Can you tell us how much you have identified as bad loans in the quarter going and what is the outlook on your gross NPAs once you are going to see the accounts being transferred? Where do you see the overall capital adequacy ratio headed?
We were expecting that some accounts will be transferred by December but somehow it has not happened. But in any case we have identified certain accounts – in the range of Rs 11,000-12,000 crore. Out of that, live ledger itself is around Rs 7,000-8,000 crore. This will help me reduce the gross NPA below 17%. We are now doing technical write offs.
We have decided that in the next three years, partly by recovery and partly by technical writeoffs, we will be able to reduce our gross NPAs below 4% by 31st March 2025. That is my target now. Net NPA and all these things have been brought well under control. Only gross NPA continues to be a little pain point. We are now doing technical writeoffs but by March 2022, it will be below 17% and by March 2023, my target is to reduce it below 12%. We are adequately capitalised. My capital adequacy as on 31st December is 16.75% which is quite good and the PAT itself is 14.13% and the profits which we are generating will further help us in improve the CAR.
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Run us through the outlook on your overall asset quality which has seen an improvement on a sequential basis. Do you think that these levels are sustainable?These levels are very much sustainable. Despite the Covid situation, the collection efficiency has improved to 96% and the SME level also from 3.86% in September has declined to 3.53%. We are quite sure that we will be able to maintain this asset quality as far as net NPAs are concerned. As far as NPAs are concerned, we are expecting reduction and by March, we expect that from 20%, it will come down to below 17%. The asset quality is quite stable and is likely to improve further.
What is the outlook when it comes to advances because there has been muted growth in the advances this time around. What is the outlook when it comes to overall credit growth? Going forward, do you think it will continue to remain muted for even FY23?
The bank was placed under PCA for almost four years and during that period we were growing only in retail advances. This time the retail has grown YoY by 5%. Yes the growth has not been to that extent as we were expecting, but one good thing which we have seen this quarter is that with corporate growth, which was there almost four years, we were showing negative growth. This quarter, we have shown YoY growth of 12% in mid corporate and that is our focus area also.
In the March quarter also, we will be able to show some reasonably good growth in a very calibrated manner. Next year, we expect around 10% growth both in retail and mid and large corporates. In fact, in mid corporates, during the previous periods, when we were not able to take our share in consortium advances, where good advances have started taking share. We expect that good growth will happen but we will be quite careful about the quality of advances so that the situation we had faced earlier, will not recur.
We have seen a 50% plus jump when we look at the bottom line too. But what the markets will want to know is where are we when it comes to the sale of IDBI Bank? There are reports about how that will happen after the LIC IPO and about how the RBI has been approached for a relaxation when it comes to promoter entity post the sale. Any update on that?
Yes, in fact, the entire process of disinvestment is being handled by DIPAM department and when we had spoken last time, we had indicated that KPMG had already been appointed as the transaction advisor. The LIC IPO also is being overseen by them. That is a separate issue but as far as IDBI disinvestment is concerned, the transaction advisors have been appointed, the process will be speeded up and it will be resolve soon. But yes, the latest developments will be given by DIPAM only.
You said you are confident that the entire process could be expedited, transaction advisors have been appointed, KPMG has been brought on board any timeline, because DIPAM cannot do it alone without having the bank and the knowhow to write?
Thank you. Wherever our involvement is needed, we will certainly be involved. The overall decision will be taken by DIPAM and when the roadshow starts or when the discussion starts, we will certainly be involved. To that extent, we will be performing our role but overall decisions will be taken by them.
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As I had indicated earlier, my focus will be to improve the performance of the bank in the coming years. We have totally come out of those old issues. All problems are mostly resolved and the Covid situation is also getting stabilised.
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The number of cases are reducing and next year’s performance should be much better than this year’s performance. So, if we are able to improve the performance, it will help DIPAM to do it fast and get good valuations.
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In Q3, the total deposit stood at about Rs 2.2 lakh crore. That is down at about 0.8% on a year on year basis. What is the outlook on your cost of deposits? How do you see the bank’s deposit base going forward and what will be your strategy to lower the bulk deposits’ share?
Earlier, the bank was totally dependent on bulk deposits. The CASA ratio around three years back used to be in the range of 34-35%. Our CASA ratio has increased to 54.69%. It is one of the highest in the industry and the cost of deposits from September 30 to December 31, has reduced to 3.50% from 4.18%. Similarly, cost of funds has also declined from 4.39% to 3.79% – almost 60 bps. So that way, the focus will continue to be on CASA deposits. My savings bank is quite stable and has shown YoY growth of 14%; my current account has also shown growth of almost 5%. We have been strategically reducing the bulk deposits because these are interest sensitive deposits. The major focus will continue to be on CASA deposits and retail term deposits.
Can you tell us how much you have identified as bad loans in the quarter going and what is the outlook on your gross NPAs once you are going to see the accounts being transferred? Where do you see the overall capital adequacy ratio headed?
We were expecting that some accounts will be transferred by December but somehow it has not happened. But in any case we have identified certain accounts – in the range of Rs 11,000-12,000 crore. Out of that, live ledger itself is around Rs 7,000-8,000 crore. This will help me reduce the gross NPA below 17%. We are now doing technical write offs.
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We have decided that in the next three years, partly by recovery and partly by technical writeoffs, we will be able to reduce our gross NPAs below 4% by 31st March 2025. That is my target now. Net NPA and all these things have been brought well under control. Only gross NPA continues to be a little pain point. We are now doing technical writeoffs but by March 2022, it will be below 17% and by March 2023, my target is to reduce it below 12%. We are adequately capitalised. My capital adequacy as on 31st December is 16.75% which is quite good and the PAT itself is 14.13% and the profits which we are generating will further help us in improve the CAR.
