The Indian banking industry is in the threshold of a major revamping process with the introduction of the Insolvency and Bankruptcy Code (IBC). South Indian Bank Managing Director and CEO V.G. Mathew explains the advantages of IBC as well as the new interest rate regime in the country with the announcement of the bimonthly monetary policy.
The Indian banking sector is at a crossroads. What are the major concerns of the banking industry in this financial year?
The major concerns are asset quality, capital and growth. In a way, all three are interconnected. It is important that corporate stress resolution through the IBC process gets accelerated and growth picks up in the economy. One finds positive indicators for both.
How do you evaluate your bank with other banks, especially private banks?
SIB is reasonably well-placed as a result of proactive recognition and management of corporate stress and staying away from the stressed sectors over the last few years. The steady growth in the non-corporate loan book on the back of centralised processing capabilities built up over the last few years has led to consistent improvement in operating profit. This helped us absorb the provisioning shocks from the corporate book.
The banking industry is facing a huge issue of Non-Performing Assets (NPAs). How far do you expect the newly introduced Insolvency and Bankruptcy Code to resolve this issue?
Going by the progress seen in some early cases, it is felt that IBC is very much on track. Besides, various stakeholders are moving in tandem to ensure its success.
How are you planning to expand your operations pan India?
We already have close to 50% of the branch network outside Kerala. We are present in almost all major industrial centres and MSME clusters. The emphasis on network expansion is currently centred around non Kerala regions and as such, pan India expansion is on track.
There are talks of mergers and acquisitions in the banking sector. What are your views?
There is a good logic for merger and acquisitions in the Indian banking sector. A few more strong and large entities are needed for our banking system to be really competitive on a global scale. Having said that, there is enough scope for relatively smaller players to grow and prosper in a vast and diverse country like ours.
Do you have plans for any merger or acquisitions?
Our current strategy and approach is to grow organically for which we find significant potential and opportunity.
MSME sector needs funding. What is the outlook for this sector in this financial year?
MSME is central to the Indian economy. While there are sector specific issues in the MSME space, the overall outlook for MSME is quite promising. As for our bank, MSME accounts for about 24% of the loan book and is growing steadily.
What about the retail segment?
As growth momentum picks up in the economy, retail segment will also do well. A reasonably good traction is expected in the consumer, personal and mortgage segments during the current financial.
Still we are having a high interest rate regime. What is the outlook of interest rate in the current financial year?
The current scenario indicates a slightly elevated interest rate structure during FY 18-19. However, this is unlikely to impact credit demand as the levels do not appear to be prohibitive.
What are your views on the interest rate increase by RBI and its impact on home loans, car loans and SME loans?
The rate hike by RBI has already been factored in by the markets. Many banks have already raised their MCLR to reflect this. Under the MCLR regime, the interest rate structure in very transparent and any future reduction in liability side costs will get passed on to the borrowers automatically.
