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RBI proposals on project financing will induce borrower discipline: Indian Bank’s SL Jain
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
The RBI’s draft regulations aim to tighten rules governing lending to projects under implementation. The central bank has proposed an increase in provisions for lenders from the current 0.4% to 5% of the total loan amount for both existing and new loans.
Indian Bank Executive Director S.L. Jain offered some perspective on the Reserve Bank of India’s (RBI) recently proposed draft regulations on project financing. He stated that the proposals would lead to discipline among borrowers.
However, he is yet to examine provision requirements in lieu of these RBI guidelines, he added.
The RBI’s draft regulations aim to tighten rules that govern lending to projects under implementation. It has proposed an increase in provisions for lenders from the current 0.4% to 5% of the total loan amount for both existing and new loans.
The central bank has acknowledged the importance of such measures, particularly in light of past credit cycles where project loans contributed to stress on bank books.
Regarding Indian Bank’s performance, Jain noted that the bank raised ₹4,000 crore in FY24.
He mentioned that a considerable portion — 63% of the bank’s book — is allocated to retail, agriculture, and MSME sectors.
Jain also addressed concerns about elevated provisioning, stating that it is aligned with associated risks. He also highlighted the bank’s ability to maintain its domestic current account savings account (CASA) ratio above 40% and projected deposit growth between 8-10% YoY in FY25.
Jain expressed confidence in the bank’s recovery prospects.
He mentioned that ₹600 crore of slippages originated from the MSME sector, while ₹500 crore was attributed to the agriculture book.
Jain emphasised that loan growth was evenly distributed across various sectors in FY24.
Indian Bank’s fourth quarter (Q4 FY24) performance showed a 55% rise in profit to ₹2,247 crore compared to the corresponding period last year. The state-owned lender also witnessed 9% YoY increase in net interest income, reaching ₹6,015 crore in Q4 FY24.
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