Expect credit growth of 25% for FY12: Indian Overseas Bank

In an interview with ET Now, M Narendra, Chairman & Managing Director, Indian Overseas Bank, gives his views on the RBI’s holding company model for large financial firms. Excerpts:

The RBI is mooting a holding company model for large financial firms. What is your own assessment of this plan right now and from your own standpoint, how do you view this?

I could not go through that full report. As such, the very fact that the government has said in the budget also, they would like to hold up to 58% in the public sector bank and they have been giving the necessary capital support to have this minimum holding. The government has been always helping the banks in capital adequacy and all.

As far as the holding company and the financial conglomerates are concerned, the paper which has been made by the Reserve Bank, the government should have the majority ownership and through the holding company also they should, even if that was the model which gets the overall approval, even there, the RBI would encourage and the government will take the majority ownership to the extent of their holding in the PSU banks. That will go in the right direction as we are all sovereign organisations from the PSU banks character, which is much acclaimed internationally also. This maybe a discussion paper and they will take into account the interest of the majority stakeholders while arriving at the final guidelines.

Another issue that we wanted to touch upon was education loans. IBA has the proposal for revamping education loans and the loans will probably now be categorised as commercial loans. How much of an impact will that have on IOB?

Educational sector is one of the important sectors and we need to definitely support the deserving meritorious students and particularly the IOB, which is prominent in Southern India’s educational areas where quite a lot of deserving students are being benefited by the bank.

As far as the IOB is concerned, last year we have given more than 1 lakh 50 thousand students fresh education loans and our exposure is more than Rs 2000 crore and currently there are maybe these temporary overdues, but as these are controllable and the NPA is not up to any higher level. There was an appointed IBA committee which has gone into that and the education fees by the various educational institutions should be reasonable. Similarly there should not be merely because the education loans are available and that too at very attractive terms like up to certain amount no collateral and only personal guarantee up to 7.5 lakh.

It should not happen that the education institution can charge the students exorbitantly. So to that extent, both have to play a very responsible role. The whole idea is to see that every deserving candidate gets enough education at the higher level as well as higher studies and they should not be deprived of any financial assistance for that. The committee report which you have mentioned is in right direction and the sector also will welcome such a policy or certain directional changes and ultimately everybody will have a win-win situation.

There is something which is starting to become a concern for the entire industry. We are witnessing some degree of moderation in terms of the credit growth by the industry. How are you placed? What is your own opinion of the kind of credit growth that we can see for year?

Currently, we have a minimum 25% to 30% credit growth that we have kept, but it is always subject to a midterm correction. There is a Reserve Bank quote that the macro level has projected a credit growth of around 19%, but the latest data also speaks that there have been a good credit growth and it is hovering around 22% to 23%.

The fact is only the inflationary issue which has to be managed well and once the inflation is kept under control, maybe in the mid of the financial year or at the end of the financial year, if that expected level of inflation is managed and if it achieved, it will give a lot of scope for fresh capital investment, fresh capacity utilisation and fresh working capital and also other infrastructural and educational investments.

There are quite a lot of requirements of the credit coming and up to now also, we have been seeing that even in the current year, take for example above Rs 100 crore of corporate credit, we have been able to have a fresh sanction of more than 5500 crore in the current year. That shows that there is a good appetite for credit, but we have to naturally see going forward there have been some feeling that sector wise or overall, the demand for credit may not be up to the mark, but the fact that even at the level of GDP of 8%, there is a lot of demand and banks have to leach out not only to corporate credit, but also to mid-corporate credit, SME credit and then the retail credit.

There are a lot of segments and the space in terms of the rural, semi urban areas where there is a need for credit growth like the retail, education, housing or auto. We can expect at least 5% over the expected level of the RBI. We will have a minimum credit growth of 25% in the current year.

What are your fundraising plans? You have recently raised about $500 million, any further fundraising that is required? You specified earlier a target of funds of about $1 billion. So what is the roadmap?

You have clearly mentioned that the IOB was the first public sector bank to go in a maiden issue and have 500 million and that too at very attractive terms and we had a very good support from the international investors in Asia and Europe and other parts like the US. Now that this raised money is already in the process of deployment with most of the Indian corporates, and others have a good appetite in terms of the credit.

We need to slightly wait for sometime that these funds are all fully utilised and also there is a slightly sufficient gap between the earlier issue and the new issue which we have to raise either on tap or on private placement. We may, at a later date, go for 300 or 350 million of new issue within the overall size of that. Only we are slightly waiting for some more time.