Chairman Dinesh Khara however reiterated the bank’s target of maintaining a return on equity (RoE) of 15% on a sustainable basis even as he maintained that the bank will continue to record loan growth of 14% to 16%.
“The provisions are one time items. We had to correct anomalies in our pension and dearness allowances after a ruling in a court case which was going on since 2022. We have received okays from the government and the RBI and are now awaiting a formal notification. Besides the pension provisions we also continued providing on increase in wage by 17% at Rs 6313 crore during the quarter,” Khara said.
The increase in pension and dearness allowance will benefit 1.8 lakh pensioners from the banking behemoth and another 80,000 family pensioners. The bank has also cumulatively made a Rs 12,718 crore provision on wage revisions at 17% in the nine months of this fiscal. Khara said a majority of the employee linked provisions have been completed and the provisions on this account will be at least Rs 9000 crore lower next quarter.
Besides provisions the bank was also impacted by a fall in net interest margin (NIM) due to higher cost of deposits which rose to 4.75% from 3.90% a year earlier. NIM which is the difference between the yield a bank earns on advances and the interest it pays on deposits fell to 3.34% in December 2023 from 3.69% a year earlier.
The squeeze in NIM’s also impacted net interest income which grew by a weak 5% despite a strong 14% rise in loan book. Khara however expressed confidence that the bank will be able to maintain its NIM at around current levels as the increase in deposit rates has been concluded.“We do not expect this kind of increase in deposit rates going forward, so NIMs will be maintained. We will focus on improving our current and savings account deposits (CASA),” he said.Khara said the bank is open to raising equity capital but with a capital adequacy of 14.32% after ploughing back the first nine months profits, it is comfortably placed. “Our loan growth is 14% to 15% and current RoE is 19%. It is only when the loan growth goes beyond the RoE will we look at raising capital. Capital is not going to be a constraint for growth,” he said.
The bank saw a 19% year on year increase in SME advances and a 18% increase in agriculture advances, followed by a 15% increase in retail and personal loans. Fresh slippages during the quarter increased to Rs 4960 crore from Rs 3831 crore in the quarter ended September 2023 which included a large SME account and some agriculture loans which Khara called a “seasonal impact.”
The bank has a Rs 4.6 lakh crore pipeline for loans 75% of which are from the private sector, Khara said. Services sector is the bank’s largest exposure after retail and home loans at 13% and has increased 23% year on year to Rs 4.01 lakh crore, according to the investor presentation on the bank’s website.
Khara said disruptions in crude supply due to the tensions in West Asia and a contagion from any global slowdown are the only risks on the horizon for the Indian economy which is arguably among the strongest in the world currently.
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