Your operating profit growth in the second quarter (July-September/Q2) was 4.2 per cent and 5.2 per cent in the first half, slower than the guidance of 9-10 per cent. Why is that? Do you expect growth to recover and approach the guided level by March?
I am very confident that we will achieve the guidance we have given for operating profit. In fact, operating profit would have grown by 9-10 per cent this quarter if not for subdued treasury income compared with the same period last financial year.
We are confident of meeting the guidance because core operating profit, calculated by excluding treasury income and income from recoveries, has grown by 29 per cent. Growth was over 32 per cent in the previous quarter as well. That is a very strong indicator from a banking perspective.
Your current account savings account (casa) ratio was 36.6 per cent, below the guidance of 38 per cent. Do you think it will reach the guided level by March?
I think the casa ratio will be 36-37 per cent because credit is growing at 12-13 per cent, and I do not expect casa to grow at that pace. Within casa, individual savings bank accounts will grow by 9-10 per cent, while current accounts will grow by around 11 per cent. Overall, however, casa will grow by around 8 per cent because institutional deposits are declining.
How long will it take for your deposit rates to be repriced following the repo rate hike?
We will decide on deposit repricing at the end of this month. As of now, we are not in a hurry because we have enough liquidity. Our liquidity coverage ratio is 133 per cent, and our credit-deposit ratio is around 75 per cent. We have enough room to grow credit at the pace at which overall deposits are growing.
Does the casa ratio factor into your decision not to rush into repricing?
I am not in a hurry because, even though casa is declining slightly, our overall cost of deposits and cost of funds are coming down. This means we are managing deposit mobilisation very well. I think we can keep the cost of deposits at a low level.
It has been six months since the Reserve Bank of India (RBI) allowed banks to finance M&As. How are you placed in this regard?
We are at a very advanced stage of discussions with a foreign bank to sign an MoU for collaboration on M&A financing. I expect to finance at least one or two transactions in this quarter (Q3).
Would you be able to name the foreign bank?
Has the MoU been signed, or has it been drafted and is awaiting signature?
It is being vetted now. It may take another 10-15 days to finalise.
Are you also in talks with other foreign banks, or is it just this one?
Right now, we are at an advanced stage with one bank. First, we will complete the agreement with this institution and finance one or two transactions. We will see how that works out and then decide on the next course of action.
While the merchant discount rate (MDR) levy on Unified Payments Interface (UPI) payments has been deferred, has the bank worked out how much income it could generate once the levy is imposed?
We calculated that 96 per cent of our transactions are below ₹2,000 or fall under the exempt category. Only around 4 per cent of transactions would be subject to the levy, and the contribution from MDR is unlikely to be very high. There will be some income, which we will use to strengthen the system.
At present, payments are being made through the UPI channel, but we also plan to scale up credit lines on UPI. Based on the available data, we can conduct analytics and build other credit platforms around UPI. We can also explore cross-border remittances. We are currently connected to 11 countries through UPI. I think that if we can make the system more resilient, we can establish many more tieups across the globe.
Can you quantify the income you expect from MDR? Would it be enough to maintain your digital infrastructure for UPI?
We are already maintaining our digital infrastructure and are not dependent on this income. We are working on several other areas and avenues as well. However, once the levy is implemented, I think the income will support our activities. As for the amount, let us wait. We will share the figure once MDR is implemented.
How do you see the Insurance Regulatory and Development Authority of India’s draft norms on commissions and distribution affecting your revenue from bancassurance?
We do not earn a very large amount from this activity. Our annual income from it is around ₹350 crore, and we do not expect much of an impact on our income at present.
Have you estimated the expected drop in income?
There will be a drop of 8-9 per cent.
There was nearly a doubling of slippages in your agriculture loans in Q2. Can you explain why?
This happens because of delays in loan renewals. If loans are not renewed on time, the accounts slip into the non-performing asset (NPA) category. However, my team is working with borrowers on the ground, and we have strengthened the credit monitoring department. We will ensure that slippages remain at a reasonable level.
Have you assessed the financial impact of the transition to the expected credit loss (ECL) framework?
The requirement for the loan book comes to around ₹8,000 crore. The bank is already holding ₹2,560 crore in floating provisions for ECL, which we have maintained over the past six months.
In Q2, we set aside another ₹1,150 crore in provisions against standard assets, over and above the requirement. These amounts — ₹2,560 crore plus ₹1,150 crore — will be utilised when we migrate to ECL from April 2027. I do not see any impact on profitability or capital strength.
A provision requirement of around ₹4,000 crore remains?
The remaining requirement is around ₹4,500 crore. However, we have five years to meet it and can use that framework in accordance with RBI guidelines. Even if we make the entire provision in a single year, the impact on our capital to risk-weighted asset ratio (CRAR) would be only around 55 basis points. Our CRAR is 18 per cent at present. Hypothetically, even if we decide to make the entire provision in the same year, our CRAR would still be around 17.5 per cent.
Six months into the financial year, have you seen any impact from the West Asia war? Also, how do you see El Niño affecting your business?
As of now, there is no impact. If you look at our special mention account (SMA) book, which reflects stress in the portfolio, SMA 0, 1, and 2 accounts together account for around 2.5 per cent of the bank’s entire portfolio. Our guidance is to keep slippages below 0.9 per cent, and we are currently at 0.77 per cent. Gross and net NPAs are both declining, and our credit cost is 0.25 per cent, one of the lowest levels. From all angles, we do not face any challenges at present.
However, we are mindful of the situation and are keeping a close watch on both the West Asia war and El Niño. We are in touch with our customers and will take appropriate measures at the appropriate time.
If you had to select one metric as your top priority for the year ahead, which would it be, and why?
It would be core operating profit. We want to strengthen it further and grow it by 20-30 per cent. That would lift profitability and make it more sustainable in the long run.
