IDBI Bank puts focus on retail loans

It is currently rebalancing its portfolio to de-risk its business and also comply with regulatory norms for the priority sector lending

Public sector IDBI Bank Ltd is betting big on the retail segment. In the next two years, it has set a target to see 35 per cent of the total loan book is through retail engagement, up from the current 27 per cent. The move is part of the bank’s rebalancing strategy.

Speaking to Business Standard after flagging off 200 TVS auto rickshaws financed by IDBI Bank, MS Raghavan, chairman and managing director of IDBI Bank, said repositioning, rebalancing and reorientiation would be the mainstay for its turnaround.

The bank is rebalancing the portfolio to de-risk its business and also comply with regulatory norms for the priority sector lending. As part of this, it has increased focus on retail and priority sector lending, while a calibrated and selective approach is being adopted for corporate lending, according to him.

This has resulted in total retail advances increasing from Rs 37,000 crore in the fiscal 2012 to Rs 49,500 crore in the 2013 and Rs 53,700 crore in the fiscal 2014. Proportionate to total advances, retail advances increased from 21 per cent to 27 per cent in the last three financial years. The Bank projects to grow the share to 35 per cent in the next two years.

“The focus would predominantly be on retail loans, which is expected to push up the retail composition to 40 per cent in a few years. We had some structural problems and the last two years had been very challenging,” said Raghavan, and added the bank hopes to ease the stress as and when the economy bounces back.

The other major challenge for the bank was on meeting the priority sector lending. “Penalties were being imposed for not meeting the prescribed levels under the priority sector lending,” said Raghavan.

He explained as per RBI regulations, domestic banks were mandated lend 40 per cent of the adjusted net banking credit (ANBC) of previous year towards the priority Sector Lending during current financial year.

However, a shortfall here would result in depositing a certain sum with the Rural Infrastructure Development Fund (RIDF), SIDBI  and NHB. The outstanding of such deposits made by the it as on July 31, 2014, was at Rs 18,661 crore, which fetched an interest rate of around 4 to 5 per cent per annum.

This represents an opportunity loss to it, as the same funds deployed in normal business would have generated substantially higher yields.

“We have to compensate by cutting costs and improving the branch efficiency,” said Raghavan, who noted one of the major bottlenecks for it has been the poor network.

IDBI saw a four fold jump in branch network from 700 in its initial years to 3,000 now, which is not satisfactory according  to him.

“Poor branch network was also not helping us achieve the desired targets and CASA,” said Raghavan, who noted CASA levles for the bank for each branch stood at Rs 38 crore, when compared with the industry’s Rs 25-30 crore.

"However, because the poor network CASA percentage was at 18-19 per cent, as compared to other nationalized Banks 29-30 per cent and SBI's 43 per cent. This also pushed the cost of funding high to 8.04 per cent as compared to 5.5-6 per cent of the the industry," he said.

Each of these structural problems can bring down the Bank, said Raghavan, adding the Bank opened 300 branches in six months since July last year and in 2014-15, Bank plans to open another 600 branches.

As part of rebalancing strategy, IDBI has decided to focus on retail. Around June last year, Bank's 78 per cent of the Book was corporate, while 22 per cent was retail. As of March 2014, 72 per cent was corporate and 28 per cent retail. "In the next 18 months it should be 60 per cent corporate and 40 per cent retail, that is our target," said Raghavan.

Bank's current book size is around Rs 4.23 lakh crore and by end of 2016 the Bank set a target to increase it to Rs 6.25 lakh crore, said Raghavan.

"IDBI will turn around in the next two years, though it is tight rope walking. But everything will relax because of the measures we are taking and the economy hopefully is expected to come back and we will be sound footing," said Raghavan.