NEW DELHI: State-owned Indian Bank on Monday said it has successfully integrated the software system with the erstwhile Allahabad Bank post the amalgamation. The bank has successfully completed process of technical migration of CBS/ITMS software of erstwhile Allahabad Bank with CBS/ITMS software of Indian Bank, it said in a regulatory filing.
The scheme of amalgamation of Allahabad Bank into Indian Bank came into force from April 1, 2020.
Indian Bank carried out the migration process on 13-14 February, and had informed that customers may face some disruption in services.
The bank made drastic improvement in its asset quality with gross NPA decreasing 365 bps to 9.04% of gross advances, from 12.69%, y-o-y.
Chennai-headquartered public sector lender Indian Bank on Friday reported a net profit of Rs 514.28 crore for Q3FY21, on the back of asset quality improvement and cost management measures. It had incurred net loss of Rs 1,739 crore in the same quarter last fiscal. On the sequential basis, too, its net profit has increased by25%.
Speaking to media persons through virtual mode, after releasing the earning performance, Indian Bank MD & CEO Padmaja Chunduru said the bank has continued its steady growth in both business and profit combined with good control over asset quality. Post the merger of Allahabad into Indian Bank, the gains in terms of CASA, larger geographic footprint, ability to take higher exposures, economies of scale, are all tangible now.
“Our relentless focus on credit monitoring has yielded results in restricting slippages. Even taking into account unflagged NPAs the position is very much in control. Process changes that the bank has implemented in first two quarters, centralising the processing on both liability and asset side are now yielding results. The bank is investing heavily in IT and digital infra and security controls to ensure a seamless, pleasant banking experience to our customers,” she said.
The bank made drastic improvement in its asset quality with gross NPA decreasing 365 bps to 9.04% of gross advances, from 12.69%, y-o-y. On a sequential basis it decreased by 85 bps. Similarly, net NPA came down to 2.35 % from 4.22% with a reduction of 187 bps. On a sequential basis it decreased by 61bps. “Our aim is to keep gross NPA and net NPA below 9% and 3% respectively, going forward,” she said.
Provisions and contingencies for Q3FY21 were at Rs 2, 585 crore as against Rs 4,555 crore in the corresponding quarter of previous year. Specific loan loss provisions for Q3FY21 were at Rs 738 crore, compared to Rs 4, 705 crore in Q3FY20.
Chunduru said bank will have to only restructure 1.6% to 2% of the loan book post-lifting of the moratorium and the collection efficiency during December stood at above 90%.
The bank’s total capital adequacy ratio (CRAR) improved by 42 bps to 14.06% as on Q3FY21 in comparison to 13.64 % as of Q2FY21 as against regulatory requirement of 10.875%. Tier-I CRAR was at 11.18 % as on Q3FY21 versus 10.74% as on Q2FY21 on sequential basis.
Chunduru said the board of the bank has approved raising of Rs 4, 000-crore capital and this will be done to bring down government’s shareholding to 75% from the current 88.06%. The board has also approved raising of tier 2 capital aggregating up to Rs 3,000 crore through issuance of Basel III-compliant AT1 / tier 2 bonds in one or more tranches during the current or subsequent financial years based on the requirement. “We don’t need to immediately raise capital, but we are ready with the enabling resolution so that we can do it as and when the market situation is conducive,” she said.
The net interest income of the bank rose by 31% to Rs 4, 313 crore from Rs 3, 293 crore while net interest margin (NIM) increased by 42 basis points and stood at 3.13% for Q3FY21 as against 2.71 % for Q3FY20. However, non-interest income was lower at Rs 1,397 crore as against Rs 1,673 crore on account of lower profit on sale of investment and slowdown in recovery in bad debts.
For raising equity through QIP or FPO, the bank will take a call based on the market scenario and requirement.
Indian Bank is looking at diversifying loan growth across sectors and geographies by targeting manufacturing, service and infrastructure companies with good rating. It will also focus on refinancing of well-rated corporates where cash flows are strong. In an interview with FE’s Sajan C Kumar, Indian Bank MD & CEO, Padmaja Chunduru said the bank proposes to concentrate on industries with low and moderate risk due to the Covid impact. Excerpts:
The bank recently raised funds bonds. What was it for?
Bonds totalling Rs 1,608 crore were raised for augmenting the AT-1 capital and overall capital adequacy. During FY21, out of existing tier 1/tier 2 bonds, Rs 1,000 crore was repaid on maturity or exercise of call option and further there is a call option due in March 2021 for Rs 500 crore. There will be no additional interest burden as these bonds mainly replace the ones paid out during the year. Currently, we have no plan to raise equity capital from the Centre or financial institutions. For raising equity through QIP or FPO, the bank will take a call based on the market scenario and requirement.
Due to pandemic what kind of restructuring of accounts are you anticipating?
Owing to Covid-19 pandemic, stress was expected in almost all the sectors. Restructuring expected is up to 2% of total standard advances, of which corporate will be up to 1.5%. The retail segment has not approached much for restructuring, MSME has the same pace as in the previous tranches. Corporate restructuring requests are in line with expectations. The overall collection efficiency in November 2020 was at 86%.
Did disbursement improve in the third quarter ?
There has been discernible improvement in disbursements under retail assets in the first two months of Q3. In corporate and mid-corporate sector, up to November 2020, the bank had accorded approval for good number of proposals and while half of them have been disbursed, there is still a significant undisbursed amount. Corporate and agriculture credit has picked up in Q3. Also, the bank will look at diversifying growth across sectors and geographies by targeting manufacturing, services and infrastructure companies with good rating, along with refinancing well rated corporates where cash flows are strong.
What will be Indian Bank’s approach towards corporate lending?
Our endeavour is to maintain a good mix of RAM (retail, agri and MSME) and corporate portfolios. The bank is well positioned to grow in both the segments. Our RAM portfolio, at present, is 56% of the total credit. The share of retail assets is 32% of the RAM portfolio and 18% of the total credit portfolio. The bank proposes to concentrate on industries with low and moderate risk due to Covid impact. We are targeting a moderate growth of 10% in corporate credit. So far, the growth in corporate sector has been mostly for NBFC/govt/PSE segments. We expect private investments to pick up in Q4.
Indian Bank MD & CEO, Padmaja Chunduru
How much recovery do you expect by the end of this fiscal?
Under NPA management, focus is on arresting fresh slippages and recovery in the existing accounts. Credit monitoring – a vertical with centres in Chennai and Kolkata, monitors and reviews on a daily basis all accounts showing incipient signs of any irregularity. Accounts in the watch list are closely monitored. SARFAESI action is being initiated in all eligible NPA accounts to speed up the recovery. Recently we have conducted mega e-auctions in which total 166 properties were sold. Online OTS (one-time settlement) portal has been implemented for small accounts up to outstanding of Rs 1 crore and field functionaries are advised to mobilise maximum OTS proposals.
How is your CASA position? Any plans to enhance it?
CASA being the core strength, the bank has been striving hard to increase the CASA ratio on a continuous basis. These efforts are getting translated every quarter as it has improved from 41.28% in March 2020 to 41.90% in September 2020. The bank will be leveraging data analytics and market research to constantly upgrade its product offerings for customer retention. It is also increasing its wallet share by aggressively cross selling other products such as retail loans, credit card, insurance products, mutual fund products and trading account services.
How well has the bank proceeded on integration of Allahabad Bank with Indian Bank?
Treasury operations have been fully integrated. Harmonised products, interest rates and service charges have been made available to customers of the amalgamated entity. A common gateway software (Co-Ex) is being used to provide interface to the two CBS systems to carry out basic financial and non-financial transactions from either bank branch. We expect to complete the CBS integration in this financial year as planned.
What is the update on finding a minority partner for Ind Bank Housing?
Our subsidiary IBHL is in process of engaging consultant to assist the company in its revival plan. The company is also engaged in informal discussion with potential investors. At present, we have not received any formal expression.
S&P does not assign equity credit to additional tier 1 instruments issued by Indian public sector banks due to uncertainty over their ability to absorb losses on a going-concern basis.
S&P Global Ratings on Thursday affirmed its ‘BBB-‘ long-term and ‘A-3’ short-term issuer credit ratings on Indian Bank while pointing out that the outlook on the long-term rating was negative. The agency said it has removed the ratings from CreditWatch, where they were placed with negative implications on June 26, 2020.
S&P said it affirmed the ratings because it expects Indian Bank to be able to absorb a moderate deterioration in its asset quality over the next 12 months and benefit from faster-than-expected economic recovery in India. “Indian Bank’s performance following its merger with Allahabad Bank has been better than we expected,” it said.
According to S&P’s estimate, Indian Bank’s credit costs will stay high at 2.2%-2.9% over fiscals 2021 and 2022. The bank’s reported NPL ratio declined to 9.9% of total loans as of September 30, 2020, from 11.4% as of March 31, 2020.
In the absence of the Supreme Court ruling barring banks from classifying any borrower as nonperforming, Indian Bank’s NPL ratio would have been higher by about 55 basis points, but still lower than in previous quarters.
The improvement in the asset quality was helped by a six-month moratorium on loan repayment and financial savings of borrowers.
S&P said the management expects 2%-3% of the loans to get restructured under the central bank’s one-time restructuring window. On the corporate side, these are mostly loans from the hotels and tourism sectors, which were hard hit by the pandemic.
“We see a high risk of Indian Bank’s RAC ratio falling below 5% on a sustained basis if the bank’s credit costs or credit growth are higher than our forecast, especially if the bank is unable to raise commensurate common equity capital. Indian Bank’s RAC ratio was 5.2% as of September 30, 2020,” it said.
S&P does not assign equity credit to additional tier 1 instruments issued by Indian public sector banks due to uncertainty over their ability to absorb losses on a going-concern basis.
The negative outlook reflects the agency’s view of a likely weakening in Indian Bank’s capitalisation and asset quality owing to Covid, while it sees a one-in-three chance of a downgrade over the next 12-18 months.
“We will lower the rating by a notch if Indian Bank’s RAC ratio falls below 5% on a sustained basis or the bank’s NPL ratio or credit costs increase sharply and we expect them to remain at that level or increase. The RAC ratio could fall below 5% if Indian Bank’s credit growth or provisioning is higher than our forecast, particularly in the absence of capital infusion. We would revise the outlook to stable if the bank’s RAC ratio can sustain above 5% and its asset quality remains comparable to similarly rated peers,” S&P said.
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