No impact on profitability for transition to ECL norms: Kalyan Kumar

Central Bank of India MD & CEO Kalyan Kumar says healthy loan growth will improve the CD ratio while cost-cutting measures will lower the cost-to-income ratio below 50 per cent in three years

Kalyan Kumar, who took charge as MD & CEO of Central Bank of India in September last year, says the bank was an outlier on two fronts — credit-deposit ratio and cost-to-income ratio. In a telephonic interaction with Manojit Saha, Kumar said while healthy loan growth will improve the CD ratio, the bank has identified areas to reduce costs so that the cost-to-income ratio can come down below 50 per cent in the next three years. Edited excerpts:

 

Central Bank of India’s total business has crossed ₹8 trillion in March. What is the next milestone?

 

The strategy is to reach total business of ₹10 trillion by March 2028. Our guidance for FY26 was deposit growth of 10–12 per cent and advances growth of 14–16 per cent. We have crossed the guidance. Our target for FY27 is also the same. We are quite confident of achieving this and having a business of ₹10 trillion by March 2028.

 

In FY26, we added ₹1.26 trillion of business. I joined the bank on September 30, 2025. In the second half of the financial year, which is the busy season, we added ₹86,000 crore of business. Advances growth in FY26 was 18.76 per cent and deposit growth was 13.38 per cent.

 

Loan growth was very robust in FY26…

 

The opportunities available here are huge. Our expertise or strength is the RAM [retail, agri, MSME] sector. We grew retail loans by 25 per cent, of which vehicle loans were 16 per cent. Several other banks grew vehicle loans by over 30 per cent because opportunities are huge. We have still not leveraged our full opportunity. I am confident that similar growth achieved in FY26 can be repeated this year.

 

Net interest margin fell 33 bps to 3.07 per cent in FY26. Have margins bottomed out?

 

I agree with you. NII has grown by 1.97 per cent and 61 per cent of the loan book was linked to an external benchmark. Due to the policy repo rate reduction of 125 bps (since February 2025), there was a major hit to interest income. That is why NIM reduced, though NII was positive, because due to high growth, yield on advances was 8.21 per cent in FY26. We aim to maintain NIM at 3 per cent or above. Some of the deposits have been re-priced. In Q1 and Q2 of FY27, more deposits will be re-priced. We have that comfort while loan rates have stabilised. Cost of deposits, which was 4.82 per cent in FY26, is expected to improve to 4.6–4.7 per cent. So margins will improve.

 

The cost-to-income ratio increased sequentially in the January-March period to 59.31 per cent, which is higher than peers. How do you plan to bring it down?

 

When I joined this bank, there were two major concerns. One was the CD ratio and the other was the cost-to-income ratio. The CD ratio was 66 per cent, which has now improved to 73.80 per cent due to healthy growth. This will improve further in the current financial year.

 

I agree with you that in terms of the cost-to-income ratio, we are an outlier. We are heavily impacted on the interest income side due to rate cuts. Our non-interest income was hit, with treasury income at only ₹9 crore in Q4. We have also identified several cost-curtailment measures. We reduced other operating costs by 119 bps in the previous quarter. We are confident of reducing the cost-to-income ratio below 50 per cent in the next three years.

 

Can you mention some of the areas that need improvement?

 

One is per-branch business, which is ₹117 crore, while for peers it is more than ₹200 crore. Productivity from business units is not commensurate with peers. Another example is lease rental for premises and branches. I found out that if a lease is getting expired in the next six months, the bank does not have much bargaining power to get good rates. We have now decided to start searching for new premises or start negotiating with existing landlords two years before expiry of the agreement, so that we can get good rates. Another thing I found out is that our branches are keeping 10 per cent higher cash, which is also increasing the cost. We are strategically working to reduce our cost.

 

What would be the impact on provisions due to the transition to ECL norms?

 

We have been preparing for the migration to ECL norms for the last few quarters. In Q3, we made a provision of ₹1,525 crore for stage-1 and stage-2 assets. A 100 per cent provision for stage-3 assets is already there. RBI has permitted banks to take provisions for the transition from reserves as well. We have more than ₹9,000 crore of reserves available. Our capital adequacy ratio is 17.91 per cent and CET1 is 15.61 per cent. I can say with confidence that migration to ECL norms from April 1 next year will not impact our profitability and other ratios significantly.

 

Do you have any capital-raising plan this year?

 

We have taken board approval to raise ₹7,000 crore. I do not need capital to meet the growth aspiration of 16 per cent. The capital position is sufficient. If required, we can raise capital in the coming days; there is no immediate plan.