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| IOB bullish on domestic market |
| Namrata Acharya / Kolkata Sep 25, 2009, 00:37 IST |
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With an aim to increase credit growth by at least 20 per cent and maintain a capital adequacy ratio of 12 per cent over the next two-three years, Indian Overseas Bank (IOB) has recently submitted a capital requirement plan for nearly Rs 1,400 crore to the government. In an interview with Namrata Acharya, S A Bhat, chairman and managing director of IOB says while the bank is bullish on the domestic market, it hopes its growth to be good, if not extraordinary, overseas due to regulatory issues in certain geographies, such as Hong Kong. Excerpts:
How has the quarter been so far in terms of overall business, particularly credit growth?
Our total business at present is close to Rs 180,000 crore. For the entire year, we have set a credit and deposit growth target of 20 per cent. So far, both deposit and credit growth of the bank has been nearly 18 per cent year-on-year. I am certain, we will be able to achieve the target as credit growth will pick up further with the start of the busy season. Over the last quarter, our credit growth has been nearly 3 per cent, compared to the system's growth of 0.45 per cent. Of the total business of Rs 180,000 crore, the share of domestic advances is about Rs 75,000 crore.
If the credit demand picks up, do you see any possibility of interest rates rising? Also, do you think the Reserve Bank of India (RBI) will change key policy rates in the next monetary policy review?
I think interest rates will stabilise now. They may not go up. In the RBI policy to be announced in October, I think the central bank will keep all options open, but may not change rates now.
Given the global financial crisis that hit the banking sector across geographies, are you looking at expanding overseas operations this year?
We are consolidating in overseas markets. Even today it is very difficult to raise money overseas at a competitive rate, and that is putting pressure on expansion. Prior to the turmoil, we were able to raise funds at Libor plus 25-75 basis points, or maximum Libor plus 100 basis points. Now for the same fund, we are required to pay Libor plus 300-350 basis points, which makes it expensive to borrow. We are still doing it, but we may not grow to the extent we had planned earlier.
There are certain other economies, where the local monetary authorities have put some restrictions on growth. They don't allow the banking system to grow beyond a certain percentage, because they have started giving some additional incentives for maintaining their deposit base as well as bringing new deposits into their countries. So, the overall growth is going to be good, but not extraordinary. We plan to grow by 20 per cent in the overseas market. About 5 per cent of our balance-sheet is from our overseas operations.
Which are the geographies where you are facing regulatory issues?
Hong Kong. We have two branches there.
Do you see your net interest margin (NIM) being under pressure?
Our NIM till August-end was 2.84 per cent. We are planning to maintain it at 2.80-2.90 per cent by the end of this year. We are taking steps to see that it does not come down.
Do you have any fund-raising plans this year?
No. We recently raised Rs 1,000 crore by way of upper Tier II and lower Tier II.
What about the capital infusion plan?
On the basis of a 20 per cent growth projection in the next couple of years, we would require capital, both Tier I and Tier II, to maintain a 12 per cent capital adequacy ratio. Accordingly, we have submitted a plan to the government on how we are going to raise it. I think Rs 1,200-1,400 crore will be required for this. We've several options.
One is, the government either giving preferential capital to the bank to increase the Tier I capital, or allowing us to go for a follow-on public offer. Two, Tier II capital is easily available in the market, so we will take that route. And finally, we have the option of perpetual bonds, which will increase Tier I capital adequacy.
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