ECL framework to improve banks' overall credit culture: Indian Bank CEO

We are targeting double-digit growth of 13-15 per cent in the next two years, and in the last two years, we have grown more than that, said Indian Bank's CEO Binod Kumar

Chennai-based Indian Bank targets around 13-15 per cent growth in the next two years. The bank’s Managing Director and Chief Executive Officer, Binod Kumar, shares his views on the transition to expected credit loss (ECL), the impact of GST 2.0 on the sector, and second-quarter results, in a face-to-face interview with Shine Jacob. 

You are in a transition phase to the expected credit loss (ECL) framework. What are your thoughts with regard to the Reserve Bank of India (RBI) norms?

 

I want to appreciate the RBI for the timing. This is the time when banks are in good health. You have to come out with measures with a one-time impact, and hence the timing is important. There are a lot of positives and impacts. The overall credit culture will improve in the banks, and the credit portfolio will become more risk-sensitive.

 

Some technological expenditure will also happen for data requirements. Banks will be able to manage risk in a better way, resulting in less capital charge. Now, we make provisions when something goes wrong. This move will transform us from an incurred loss model to a predictive approach.

 

There will be an impact. ECL is a function of probability of default (PD) and loss given default (LGD). For PD, they have given a five-year window, which is good. LGD they have put a bit higher, and there will be some impact on that account. We are still assessing the impact.

 

How are you planning to address this impact?

 

I can tell you, we will be able to manage this impact without much deterioration in our capital adequacy ratio. I have much cushion with regard to planning. Our government holding is 73.84 per cent, and I have the opportunity to go for a qualified institutional placement (QIP) or some capital raising. I have board approval to raise ₹5,000 crore QIP. In the first year itself, we should be able to come out of these concerns.

 

How do you see the impact of the GST 2.0 decision on the sector?

 

First of all, the GST impact came during the last 10 days of the second quarter. It has increased consumption and is good for the banks as it will drive growth during the current quarter (Q3FY26).

 

Having said that, we have seen some good traction in the vehicle loan segment, as a lot of cars were sold during the Navratri period. So, we are expecting good traction in vehicle, housing, and micro, small and medium enterprises (MSME) loans in the coming quarter. In the first 10 days, it was seen on the consumption side and will soon translate to the credit side. I expect a 50-60 basis points (bps) impact on demand due to the GST decision. The impact will not be very high, and we will be able to manage that without much deterioration in our capital adequacy ratio. Since it was announced, there has been at least a 25 per cent rise in queries. We are seeing good demand in MSME, retail, and housing too.

 

How do you see the second-quarter performance, and what were the key drivers of growth?

 

The growth has been good, sequentially and year-on-year (Y-o-Y) also. Deposits increased by 12.09 per cent Y-o-Y. The good thing is that we were almost able to maintain the CASA ratio at 38.87 per cent. Advances grew by 12.65 per cent, and my RAM (Retail, Agriculture & MSME) growth is 15.57 per cent. Out of that, retail has grown by 18.58 per cent. I have sold Inter Bank Participation Certificates (IBPC) of ₹12,000 crore, through which I have generated resources at a cheaper cost as compared to term deposits or bulk deposits.

 

On the asset quality side too, my gross non-performing assets (GNPA) have come down by 41 basis points (bps) to 2.60 per cent. NNPA is already at a good level of 0.16 per cent. All in all, whatever guidance we have given is on track. Rather, GNPA guidance I had given was less than 3 per cent, which will now be around 2 per cent.