‘We have ensured that our underwriting standards are robust’

Their offer is for a very short while. I don’t want to be opportunist. I would prefer to offer home loan at 6.70 per cent interest rate for a sustainable time. The way I look at it is that the borrower takes a call depending upon the interest rate. I don’t want people to take a call with an illusion in mind that this is the interest rate, particularly if it is a long-term borrowing. We were the first bank to cut interest rate on home loans (in September 2021 from 6.80 per cent to 6.70 per cent).

We have also now linked up this interest rate with credit bureau scores. The interest rate is linked to the quality of the borrower in terms of risk. It was a very conscious call taken by us.

Moreover, when we set interest rates on loans, we have to take care of all the stakeholders. We have to ensure that there’s reasonable amount of money which we create for the stakeholders who have given us the capital to lend. We don’t want to short-change anyone for the benefit of some other stakeholder. I feel that if we can ensure timely delivery, we have got enough market and we are growing well even with 6.70 per cent rate.

Retail credit has grown well. Our CAGR for the last three years is 16 per cent in retail loans. And if we go (back) a little longer , maybe five years’, I think it is around 24 per cent. It seems to be more pronounced in the recent past on account of the fact that the corporate credit has not grown as well. Bubble at times gets created, if at all, when underwriting is not up to the mark or banks are not cognizant of the risks, which are inherent in such kind of underwriting. The second reason for a bubble getting built, if at all, is people borrow beyond their ability to repay.

In the current situation, we have been underwriting retail loans to our existing customers who have a very clean track record. And they are the ones who are having their salary accounts with us – the majority of them when it comes to unsecured lending. When it comes to our home loans, a segment where we are the largest provider in the country, we give due cognisance to the credit bureau ratings/ scores. So, that way we have ensured that our underwriting standards are robust. We have strong underwriting principles which support us in terms of building a healthy portfolio. We have got the collection machinery on the ground. We have strengthened this machinery as we are going big on retail. We have insulated the bank’s balance sheet from the potential risk which might emerge from any kind of bubble.

To my mind, an ideal portfolio mix which a bank can handle well...And as long as our current loan portfolio keeps on generating interest income…I think we are in a safe zone as far as the mix is concerned.

What normally happens is that when it comes to the behaviour of yields, we have seen that the short-term yield is normally the one which dictates the long-term yield curve. Of late, the variable reverse repo rate is almost touching 4 per cent. Perhaps repo rate might undergo a change at some point of time.

And also, it is a reflection of the increased demand for credit. So, the way I look at it is that these are the trends which are seen by some of the corporates and they would like to lock in their debt obligations. That is why they opt for fixed interest rate loans.

So, as far as slippages are concerned, we have done an assessment of our book. The cash flows were disrupted almost in no time with the outbreak of the Covid. But, the capacity of repair to the cash flows is also significantly strong. With the opening up of the economy, the cash flows are getting restored. This is also what we have seen. And the validation of this behaviour is also seen in the kind of repayment behaviour which we have observed in the last quarter.

So, having said that, now, as far as our bank is concerned, we have done restructuring of about ₹30,000-odd crores and on this, the probability of default in the normal course when we looked at our data, was about 30 per cent. But I expect it to be much lesser in this portfolio for the reasons which I just described.

And we have done the provisioning (₹6,181 crore). And also, part of the loans, which we have given to such MSME, are under Guaranteed Emergency Credit Line, which is a first loss guarantee scheme.So, I think, more or less, we have already hedged the potential risk on account of any further slippages or stress which might build up this particular portfolio.

I think there are many variables when it comes to performance. Actually, the culmination of those moving parts is the net result, which is shown every quarter. Our endeavour is to improve our performance on an ongoing basis. Hopefully, we should be in a position to do so.

When I assumed office (in October 2020), I had indicated that we will aim for Return on Assets of one and Return on Equity of more than 15 per cent. We have attained RoA of 0.61 and RoE of 13 per cent plus. We are within striking distance when it comes to ROE. In terms of RoA, I think we should be in a position to improve.

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