IDBI Bank is readying an “API (Application Programming Interface)-Banking” platform that will act as a bridge between third party entities such as account aggregators, payment service providers and fintechs, and its core banking solution platform to create a connected ecosystem, enhance customer experience and open up new revenue streams, according to Suresh Khatanhar, Deputy Managing Director (DMD).
In an interaction with BusinessLine , Khatanhar emphasised that retail banking is a growth story whose potential has not been unearthed fully. Excerpts:
Now that you are out of the prompt corrective action (PCA), will your bank re-balance its advances portfolio?
We came into difficulty because of the high provisioning arising from the Asset Quality Review (AQR) exercise (initiated by the Reserve Bank of India for banks in 2015). This had an impact on our capital. We had a little extra problem because of our Development Finance Institution (DFI) status in the past, whereby we had chunky exposure to infrastructure and core sectors. We addressed this by taking a few measures. Firstly, by de-risking the loan portfolio. Secondly, we revisited our risk management policies. Thirdly, we worked on the risk appetite framework, whereby we adopted a capital light business, so that we are future-ready.
Actually, during the PCA period (from early May 2017 till early March 2021), we could deep-dive into our process, products, risk management policies and also re-balance the portfolio. We were skewed in favour of corporate banking, where the risk is concentrated. Though we were not allowed to lend to corporates under PCA, we saw in it an opportunity to grow retail advances. So, our corporate to retail loans ratio is today at 38:62 (57:43 when PCA was imposed).
The portfolio composition shift happened because we were not doing corporate loans. But now that we have started doing corporate loans, this ratio, in all probability, will shift. But then this year, I don’t think retail advances go below 60 per cent (of total advances). We have decided that we will not go below 55 per cent in retail.
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And then we had a lot of high-cost borrowing. Bulk term deposits were at about 36 per cent of total deposits. This has come down to about 8 per cent. Our CASA (current account, savings account) was about 32 per cent of total deposits. This is now at 52 per cent. So, this has helped us to improve our cost of funds and cost of deposits.
We would like to further consolidate and strengthen our balance sheet, which we have been doing for the last two-three years, and grow. It is now time to grow the loan book from here on.
Stress seems to be building up in banks’ retail portfolio. Isn’t retail lending becoming a bit risky?
Having decided to become a retail bank, we put in place a reorganised structure…And today, we have separate verticals for structured retail assets, micro, small and medium enterprises, agriculture, and recovery as well as collection. We have separate processing centres. We have centralised operations. All these are very progressive steps, ensuring that risk is properly addressed…So, this way our operations have been segregated. And more importantly, this business model is a scalable one because retail is a volume game.
The retail banking story is a growth story. I don’t think the potential has been unearthed fully. It is a growing market. Today, the service sector is growing. People working in the sector want car loan, housing loan, personal loan, place deposits, make investments, and want various services…So, retail banking has the potential to grow.
Now in such a severe pandemic, which comes once in a century, anything under the sun can come under stress.
Our bank’s retail portfolio composition is a little different from other banks. We are not into unsecured loans and 93 per cent of our retail loan book is mortgage book, which is secured. Ninety per cent of the borrowers are salaried employees with credit score of above 700. While stress is there because of the pandemic, given this kind of borrower composition, revival is very much possible and easy. And today, even after the second wave of Covid, our collection efficiency is at pre-Covid level, which is 94-94.5 per cent….So, our retail banking model is well set and we have a committed sales force.
You mentioned being future-ready. Can you throw some light on this?
As soon as economic activity improves further, we would like to do more business, give more services to our customers...But simultaneously, our focus this year will be on digital penetration. We are working on various digital products. So, having made our balance sheet strong and robust, we would also like to make our infrastructure robust.
Now our API-Banking is also getting ready. This will help us integrate lot many apps so that we can onboard many fintechs, going forward.
API-banking will be integrated with our core banking solution platform. This will enable us to connect a lot of applications for cross-selling third party products, paying utility bills and credit card issuance, among others.