Mr. P Sitaram, Chief Financial Officer (CFO), IDBI Bank Ltd, is a Chartered Accountant. He is a result oriented professional with over 24 years’ of experience in Financial & Accounting operations. He has experience in entire gamut of finance operations, Treasury, Domestic & International Resources, Taxation, Corporate Credit, Investments and Finance.
IDBI Bank Ltd. is a Universal Bank with its operations driven by a cutting edge core Banking IT platform. The Bank offers personalized banking and financial solutions to its clients in the retail and corporate banking arena through its large network of Branches and ATMs, spread across length and breadth of India. We have also set up an overseas branch at Dubai and have plans to open representative offices in various other parts of the Globe, for encashing emerging global opportunities. The vision of the Bank is to be the trusted partner in progress, by leveraging quality human capital and setting global standards of excellence, to build the most valued financial conglomerate. Our experience of financial markets helps us to effectively cope with challenges and capitalize on the emerging opportunities by participating effectively in our country’s growth process.
Speaking with Hemant P Maradia and Jasmine Kohli of IIFL, P. Sitaram says "As we move towards March, there is some expectation that the interest rates will continue the upward trajectory."
You have recently hiked both deposit rates and BPLR. What is your reading of the situation on interest rates?
The background is that it has been almost 1.5 years since not just IDBI Bank but the entire banking industry had a re-look at the BPLR. Mainly because the RBI’s policy of coming out of its accommodatory stance was a gradual one and we were waiting to evaluate the outcome of that. Secondly, the RBI was also saying that it wanted to initiate the Base Rate regime, which finally got crystallized on July 1.
In the mean time, during this period there have been considerable developments on interest rates. In the current scenario, credit is gradually picking up and liquidity is also becoming slightly tight. Hence, there was a need to increase the interest rates, to reflect the realistic expectations of the depositors because net of inflation they would like to be left with something.
Similary, on the asset side, though the Base Rate has been introduced from July 1, the book is very small, as sanctions generally tend to take time to disburse. So by and large the book is on BPLR. And, if we have to preserve margins it will be done by increasing the BPLR rather than the Base Rate.
As we move towards March, there is some expectation that the interest rates will continue the upward trajectory. It may not be a very dramatic one but maybe in the range of 25bps to 50bps.
Whether this will reflect in the banks’ lending rates?
I think nothing will happen in next three months and with 50bps increase in BPLR by almost all banks, I don’t expect too much of action immediately.
Maybe, towards December-January, we will take a call.
The incremental credit-deposit ratio has been favourable; do you see that trend to continue in the coming weeks and months?
Our credit deposit ratio has traditionally been higher than other banks. One reason is when we became a bank we had loans; but zero deposits. So, gradually the deposits have built up.
In the fiscal year 2009-10, we reached ~84-85%. It will come down, it will not be at the levels of a commercial bank say at 72% or so, because we have some amount of borrowing on our books.
We also have some foreign currency borrowings. We have just completed MTN in the past two weeks.
When borrowings are of a sizeable chunk then the CD ratio is bound to be at around 83-84%. This year there is a possibility that we could be sub-80%. But will we surely be above market average.
What kind of NIMs do you expect to end FY11 with?
We had set target of about 1-1.75% net interest margin (NIM) by the end of the current fiscal year. In Q1 FY11, we were at 1.64%. So going by that trend we are fairly confident of achieving this level.
Do you see some pressure on your NIM?
It is a sign of a good market. Actually, the carrying cost was driving down the margins. So, I think the depositors are also interested and both the equity market as well as financial markets are lining up. So, overall there will be no hindrance for inflow of deposits or outflow of credit. Except that the RBI will be very watchful with regards to the flow of deposit to the appropriate channels. So we will have to wait and see how the policy develops.
Toward the end of June there was tightness largely because the money which went to the Government in the form of 3G and BWA auctions did not come back. But, gradually it is tilting back. Now it is fairly balanced. If we see 10 years or short term then there will be a climb down of yields.
Towards the end of the year it may start climbing back. In my opinion, perhaps in March next year it will end up higher, say around 20-25 bps. In between of course some corrections and some volatility will be there.
IDBI has always been seen as a development Financial Institution (FI). How much of your loan growth is driven by infrastructure projects?
As of now infrastructure is 16-17% of the book. It will continue to be around the same and may come down to 15%. Because we are emaphazing more on SMEs and Agri, mainly to meet our priority sector needs.
So, with this Agri and SME will expand. Housing loan has been our strength so that will expand too. We have already announced a merger of IDBI Home Finance with us. Hopefully, it will be completed by the end of this financial year.
What initiatives are you taking to boost your presence in the retail side?
Our relationships in infrastructure will nurture and continue to keep it up, as it gives us funded and balance sheet business, advisory, syndication, etc. Along with this, we are planning to grow in Retail. Our emphasis at least for the next two years will be more towards Housing loans. We are adding to the branch network but primarily we are looking to channelize the retail liability because as far as the CASA is concerned we are almost at the bottom of the industry order. So we need to catch up.
We are focusing on CASA. So, growth rate and advances will be muted as compared to earlier years. It will be around 20% maximum; deposits will also grow at that rate. So, CASA should improve. We are currently at 13% as of Q1 FY11 and plan to end at 17%. Next year we want to cross 20%. After that the real expansion in retail will happen.
Do you foresee any slippage in asset quality?
We saw some slippage in Q1 FY11. But it was not a pattern; it was more like individual cases - some mid-corporates and few in SMEs. Sow we do not foresee any recurrence of the same. There will some additions to NPAs; it cannot be avoided altogether. The gross NPA and net NPA of 1.9% and 1.21% will remain where they are even in the worst case scenario. It may improve if things turn out favourably, but I don’t see it slipping further.
What is your provision coverage ratio?
It was at 74% as of March and January.
Will fund availability be an issue given the strong private demand and high government borrowings?
Fund availability is not actually a problem for us. We are looking for lower growth to consolidate CASA. We got equity of Rs301bn from the Government. This additional equity is giving an opportunity to get further more IPDI tier I capital and as well as TierII bonds. This has created room for us so that the overall deposit requirement is quite low. We see no real challenge on this front. Anyways we have increased the deposit rates.
Would you need additional capital over and above what the Government is injecting? Are you planning to tap the markets for Tier I or Tier II?
We will explore the options for Tier I and Tier II. When the interest rates are good for us we will go for that. But this equity infusion from the Government has given us the headroom on dilution. It will be probably next fiscal year.
What is your capital adequacy ratio?
Post Government infusion, the tier I was 8.25% and overall capita adequacy was ~13.25%.
How do you see growth in your fee income?
Fee income is maintaining a good trend. We saw the trend in Q1; we saw the growth of 45% last year and that pace is continuing. Though in percentage terms it may not be 45% it will 25%.
Any further slippage expected in restructured loans?
No. The two cases that happened were from the restructuring. So most of the re-payments have now started.
Share with us the roadmap for installation and networking of ATMs. How do you plan to increase your client base and business volume?
We are adding about 280 branches and some of them are in the under planned areas, where most probably we will not need the ATMs.
About 180 braches will have the ATMs. In standalone ATMs, we will add 50-100; overall we should add 283-300 ATMs during the year.
We plan to go to semi urban and urban for ATM’s.
What is the message to the shareholders?
We will be focusing on CASA and bring down the net NPAs. Without the RBI formula our provision coverage had moved to 24 to 35, and we will like to move it further. We may do some provisioning there also for tax purpose.
We are also gradually moving out of MAT.
Last year we introduced small businesses such as auto loans; this year also we will not do and perhaps next year also we will not. As of now priority is retail.