Indian Bank recently reported a steady performance in the second quarter, posting a 11.5% rise in profit despite the pressure from falling interest rates. In a conversation with The New Indian Express, Binod Kumar, Managing Director and Chief Executive Officer of Indian Bank, spoke about the key drivers of growth, the outlook for margins, CASA mobilisation strategies, and the broader credit environment.
Congratulations on a good quarter. What were the main drivers of profit growth during this period?
Thank you. The main driver of profit growth has been our ability to maintain the Net Interest Income (NII), which grew by about 6%. Despite the rate cut, our NII compression was contained to just one basis point. We were able to control the reduction in yield on advances and also bring down our cost of funds by around 13 basis points sequentially. These factors helped sustain profitability.
Your net interest margin (NIM) fell by 16 basis points in the first half and by one basis point in the second quarter (to 3.35%). Are you satisfied with this performance? What is your NIM guidance for the full year?
Yes, given that there has been a 100-basis-point policy rate cut, I am satisfied. Our entire external benchmark-linked loan book was repriced immediately, and MCLR rates also came down. The fact that we contained the NIM fall to just one basis point is encouraging.
We have guided for a NIM in the range of 3.15% to 3.30%, and we expect to maintain it. There may be some moderation in Q3 as deposit and MCLR repricing takes place, but margins should improve thereafter.
Have you been able to pass on the interest rate cut to depositors as well?
Not fully. While the 100-basis-point cut has been passed on to retail, MSME, and corporate borrowers, deposit rates have only come down by about 50–60 basis points. Given that credit growth is outpacing deposit growth, we may not be able to pass on the entire 100-basis-point cut to depositors.
Do you expect another rate cut from the RBI soon?
The environment is conducive for a rate cut—CPI inflation is benign and growth numbers are healthy. The timing will depend on the governor’s assessment, but I expect a cut, possibly in December or February.
If that happens, will your margins come under further pressure?
There could be a slight impact, but we have factored in a 100-basis-point cut in our guidance. We are mitigating this through stronger CASA mobilisation and focusing on retail, agriculture, and MSME loans, which yield better returns than corporate loans.
Your CASA ratio is close to 38%. Are you targeting 40% by year-end?
Yes, 40% is our internal target. However, maintaining CASA is challenging because financial literacy is increasing and customers prefer to invest idle funds in higher-yield instruments such as liquid mutual funds.
How are you addressing this challenge?
We have launched six new CASA-focused products and opened around 1.77 lakh new CASA accounts in Q2, garnering over ₹6,000 crore. Our average CASA balance also rose from Rs 25,000 in Q1 to Rs 44,000 in Q2.
We are focusing on salary accounts—especially of borrowers availing loans from us—as well as collection accounts of state governments, temples, trusts, and universities. We’ve tied up with several state governments, and a few universities have moved their collection accounts to us in the last quarter.
Your retail, agriculture, and MSME loan segments are growing rapidly. What’s driving this growth, particularly in personal and auto loans?
Our vehicle loan portfolio grew by 44% last quarter. The impact of the GST rate cut was visible only in the last week of September, so we expect the full effect in Q3. Consumption demand is picking up, and that will translate into higher credit demand.
Gold loans have also doubled year-on-year. Is there a special focus there?
Yes, we have opened around 100 new specialised agri-jewel loan branches—taking the total to 600—which has driven growth. These loans are classified under the priority sector and cater mainly to small and marginal farmers.
Your unsecured personal loans have declined. Was that a conscious decision?
Yes. We are now offering personal loans only to salaried individuals. We had seen some delinquencies in the past, so we are being cautious.
You mentioned selling IBPCs (inter-bank participation note) worth Rs 12,000 crore. What was the rationale?
It is part of our resource management. By selling interbank participation certificates (IBPCs), we raised funds at just 4.06%, which helped contain our cost of funds. The loan book will return to us after six months, so it’s a temporary adjustment.
What is your stance on corporate loans? Are you being selective there?
We are lending to corporates, but focusing on better yields. Low-yielding exposures are being phased out. Our exposure to NBFCs has reduced by around ₹6,000 crore since March, and we now lend only to highly rated ones. However, corporate loan sanctions have risen 60% year-on-year—to ₹51,000 crore in the first half.
What are the average yields on corporate and retail loans?
Corporate loans yield about 8.3–8.4%, while retail loans average around 8.5%.
The government holds over 73% in Indian Bank. Is there any plan for a stake sale?
No, we are already below 75%, and our capital adequacy ratio is healthy at 17.31%. There’s no plan for an OFS. We have board approval for a ₹5,000 crore QIP, but we may not need to use it.
How has your experience been with digital banking units (DBUs)?
The DBU concept is good, but it hasn’t taken off yet—perhaps it was ahead of its time. As digital literacy improves, adoption will rise. We’re also piloting a “virtual banking experience” for one crore digitally savvy customers who rarely visit branches. Their needs are now handled centrally, and we aim to expand this segment.
How many Jan Dhan accounts do you have currently?
We have about 2.42 crore Jan Dhan accounts with deposits of ₹12,000 crore. These accounts are an important part of our financial inclusion efforts.
Finally, what’s your outlook on credit growth for the rest of the year?
Credit growth this year has been around 10–11%, compared with 14–15% last year. However, I expect H2 to be stronger—Q3 and Q4 are usually better. Private investment is picking up selectively in sectors like green energy, solar module manufacturing, and data centres, but broader momentum is yet to build.
