The bank’s retail, agriculture, and micro, small and medium enterprise (MSME) loans together grew 11% on a year-on-year basis in Q4 FY22. On a consolidated basis, these three segments are referred to as the RAM sector by banks. Its corporate loan book contracted 5% in the same period, taking the share of RAM loans to 61.3% of total advances.
“We have grown our RAM book at 11% and we would like to maintain that rate. In these loans there are healthy margins and the risk is spread. We would continue to have that kind of a mix between RAM and corporate loans of about 60:40," Jain told Mint over phone.
While the bank targets a loan growth of 8-10%, it could be even higher depending on the demand for corporate loans in the face of rising commodity prices.
“Our working capital utilization levels are improving on the back of commodity price rise. Suppose, the utilization levels were at 70% earlier, it is now at 75-80% and that automatically increases our credit growth," said Jain.
Asked about the contraction in Indian Bank’s corporate loan book, Jain said that the lender is unwilling to sacrifice margins for the sake of growth. The abundance in liquidity owing to the central bank’s easy money policy has led to wafer-thin spreads on corporate loans, several bankers have said in the past.
“Owing to excess liquidity, pricing in the corporate segment is very fine. When such pricing is not suitable to us, we would not go ahead with it, but rather put our money where we can earn better margins," he said.
In FY22, the bank reported a 6 basis point (bps) rise in net interest margin, a key indicator of profitability, to 2.91%. Jain said that since it will take time to increase deposit rates, the rise in lending rates should improve margins in FY23.
“That apart, the increase in businesses and utilization level of corporate loans would be good for margins," he said.
Jain said that the bank would see an impact of about ₹3,000 crore from the recent 50-bps cash reserve ratio (CRR) hike but does not see this dramatically impacting the lender.
In Q4, Jain said one retail chain that is currently in the news has slipped to the non-performing category, without specifically naming the Future Group. Total corporate slippages in the March quarter stood at ₹973 crore and Jain said a bulk of it was on account of the retail chain. Indian Bank has also seen slippages of ₹1,431 crore from the small business segment.
“In MSMEs, though we have given government-guaranteed loans and protected most of them, low demand and increasing commodity prices are impacting these businesses. We are providing them adequate liquidity and, wherever the unit is viable, we are increasing their limits as well," said Jain.
