South Indian Bank is aiming to achieve 9%-10% year-on-year (y-o-y) credit growth in FY23 on the back of retail and small and medium enterprises (SMEs) loans, the bank’s MD & CEO Murali Ramakrishnan told Moneycontrol in an interaction. The bank has a special focus on cleaning up legacy bad loans and is confident of mopping up at least Rs 2,000 crore in recoveries and upgrades in the current fiscal, Ramakrishnan said.
In this candid interaction, Ramakrishnan also shares the bank’s plan to raise capital to fund growth and provides details on the bank’s new digital initiatives for FY23
You spoke of different credit cycles. What impact did Covid-19 have on your growth plans?
A- The last two years have been among the most difficult for the Indian economy as well as the global economy. From 2021, the economy de-grew by almost -24%. In April 2021, we were hit by the second wave of Covid-19. Between April-June, the credit offtake was completely ruined.
Internally, we undertook a lot of changes. I took charge on October 1, 2020. So, from October 1, 2020, to March 2021, we undertook a lot of restructuring of our own assets and liabilities. We are undertaking these changes at the bank to be ready to make use of the market opportunities.
Q- Can you provide guidance on credit growth for FY22 and FY23?
A- We started seeing some traction in credit offtake from July, August onwards. The December quarter was better than July-September. This quarter, January was little tepid because of the new variant of the virus, but February, and March showed decent credit offtake.
We see this quarter (Q4) as good as the December quarter. In the new financial year, barring any unforeseen Covid-19 wave hitting us and if the war (between Russia and Ukraine) continues for too long and if it has a secondary impact on India, then credit offtake may see some fluctuations. But barring these, I think, we should see a much better fiscal.
Q- Would you like to share some figures on credit growth?
A- People are projecting 8%-9% growth for the economy and we would also like to conservatively look at 9%-10% growth in our asset base in FY23. We are adding an incrementally very good quality portfolio. We added almost Rs 23,000 crore-Rs 24,000 crore of new book in the fiscal.
Hopefully, if the same trend continues, the provision impact from the new book will be far less, and hopefully, we will have cleaned up the earlier book also. With that, we expect the entire NII (net interest income) to be higher.
Q- What are the key sectors that you will lend to in FY23?
A- Today, we are almost equally spread across retail, SME, corporate, and agriculture. As a strategy, we would want to definitely grow more in retail and SME, primarily due to granularising exposure and diversifying risk.
Having said that, in FY22 we saw a lot of opportunities in the corporate space. We did a lot of rejig in the corporate portfolio and added a lot of high-rated corporates -- almost 85%-90% of new additions were from A-rated and above corporates. We continue to see that space offering opportunity. So, we will definitely exploit those, but consciously we will want to grow the SME and retail books.
Q- What is your outlook on asset quality for FY23?
It’s difficult to give guidance, but currently, we have a gross NPA of about 6% plus and net NPA of about 3.5%. Our aim is to certainly bring down both these metrics. I had said in my strategy document that we want to bring down the net NPA to sub 2% level and gross NPA to sub 4% level by FY24-end. My guess is we will reach these levels much before that.
As far as NPA management is concerned, we have a legacy book where we are making aggressive collections and settlements. For whatever we are adding anew, we would want to ensure quality.
Q- What are the recoveries and upgrades targets for FY23?
During the last full year (FY21), we did about Rs 600 crore of upgrades and recoveries from the entire portfolio. For the year ended March (FY22), we have already crossed Rs 1,300 crore of recovery. So, it is more than two times last year’s number. If everything moves well, we should close the fiscal with Rs 1,400 crore plus.
Next year, my wish is to at least double this figure, that is, Rs 3,000 crore of recoveries and upgrades. However, this is only an estimate, and we will have to see how the numbers pan out. There are many variables at play, but if everything is as it is today, we expect at least Rs 2,000 crore of recoveries and upgrades in FY23.
Q- When will the bank’s bottom line return to black?
A- The reason why we are providing more is to increase our provision coverage ratio (PCR). Our PCR used to be sub 60%, including write-off, which has improved to 68% as of Q3, and which I am sure will be at the same level around Q4.
We will reach 70% PCR in the coming year, by December. Excluding write-off, we are at about 48% now, and I would like to improve this to at least 50% in the coming year. Once we reach that level, the pressure to pro-actively provide more may not be there. So, this is the factor that’s making us show more losses.
Once the legacy book issue gets solved, which is what we are now aggressively working at, I am sure we will clean up most of the bad assets, and definitely, in the coming year, we should return to black.
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