He clarified that while declining interest rates can compress margins—due to the quicker repricing of assets compared to liabilities—the bank remains optimistic about sustaining its average margin for the year.
Below are the edited excerpts of the interview:
Q: The board has approved a ₹500 crore fundraise through the QIP route. Can you elaborate on this, and when do you expect the funds to be raised?
A: This is simply an enabling resolution. We incorporate it into our annual shareholders’ meeting to secure their approval if needed. There are no immediate plans for a capital raise at this moment. We have included this approval for the past 14–15 years and have utilized it only once. Our current Tier 1 capital adequacy ratio exceeds 20%.
We will only use this if a compelling opportunity arises. According to regulations, once shareholder approval is obtained for QIP, it remains valid for one year. Therefore, we renew this approval annually and utilize it only when necessary.
Q: So currently, it stands as just an enabling resolution. You may or may not raise the funds?
A: Precisely.
Q: How is business progressing? Previously, you projected mid-teens loan growth. Is that guidance still valid? With the recent cash reserve ratio (CRR) cut, do you feel more positive? Additionally, how do you foresee NIMs trending, especially after a couple of repo rate cuts?
A: Indeed, we are maintaining our earlier guidance of mid-teens loan growth, as communicated to the market. We hope to achieve that figure, and perhaps even an additional percentage point, based on emerging opportunities.
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Regarding NIMs, in a rising interest rate environment, assets get repriced more quickly than liabilities, which generally helps to expand margins. Conversely, in a declining interest rate environment, while assets are repriced quickly, liabilities take longer, leading to margin compression.
This time, since the rate cut occurred in one go, there might be pressure for a quarter or so. However, for the year overall, we anticipate maintaining the margin levels we have achieved historically. There could be a contraction for 3–4 months, but we believe we will manage to sustain the annual average.
Q: In the near term, for the first and second quarters, what might NIM compression look like?
A: As indicated in our March quarter results, our NIM stands around 3.5% to 3.6%. We anticipate a fluctuation of about plus or minus 10 basis points (bps).
We have already taken measures to mitigate the impact. For instance, gold loans—constituting about 25% of our portfolio—have been transitioned to fixed-rate products instead of floating rates starting last year. This allows us to withstand rate fluctuations more effectively. Furthermore, deposit rates are being repriced rapidly, which aids in passing on rate changes more efficiently. Consequently, we expect only about a 5–10 bps movement either way.
Q: You mentioned that gold loans make up about 25% of your portfolio. What percentage of that falls under the sub-₹2.5 lakh small loan category, where the RBI has eased norms to allow up to 85% Loan-to-Value (LTV)?
A: Nearly 75% of our gold loan portfolio is in the sub-₹2.5 lakh category. However, we don’t have immediate plans to increase the LTV ratio to 85% at this moment.
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There are concerns surrounding fluctuations in gold prices. Therefore, we will continue with the existing LTV and will make decisions as conditions evolve.
Q: Regarding the unsecured loan segment, you’ve expressed intentions to expand that area. From an industry perspective, is the worst behind us? Additionally, you aim to grow unsecured lending to about 5% of your book. What are your thoughts on this, along with your return on assets (ROA) target?
A: When we mention 5% for unsecured loans, it is over a timeframe of 3–5 years. We are very cautious and deliberate in expanding this portfolio. The book we developed over the past year is performing well, and we don’t foresee any issues. We are not rushing into this.
We have attained a return on assets (ROA) of 1.5% and aim to maintain that level this year as well, with a fluctuation of plus or minus 5–10 bps.
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