Retail banking, a story of growth whose potential has not been fully unearthed: IDBI Bank

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IDBI Bank is preparing an “API (Application Programming Interface) -Banking” platform that will serve as a bridge between third-party entities such as account aggregators, payment service providers and fintechs, and its banking solutions platform base to create a connected ecosystem, improve the customer experience and unlock new revenue streams, according to Suresh Khatanhar, Deputy Managing Director (DMD).

In an interaction with Activity area, Khatanhar pointed out that retail banking is a story of growth whose potential has not been fully discovered. Extracts:

Now that you are out of rapid corrective action (APC), will your bank rebalance its advance portfolio?

We encountered difficulties due to the high provisioning resulting 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 due to our status as a Development Finance Institution (DFI) in the past, under which we had significant exposure to infrastructure and basic sectors. We fixed this problem by taking a few steps. First, by reducing the risk of the loan portfolio. Second, we have reviewed our risk management policies. Third, we worked on the risk appetite framework, where we moved to a small cap business, so that we are ready for the future.

The tumultuous journey of a development bank

In fact, during the PCA period (early May 2017 to early March 2021), we were able to deepen our processes, products, risk management policies and also rebalance the portfolio. We were biased in favor of corporate banking, where risk is concentrated. While we were not allowed to lend to businesses under the BCP, we saw an opportunity to expand retail advances. So our ratio of business loans to personal loans today is 38:62 (57:43 when the PCA was imposed).

The change in the composition of the portfolio happened because we were not doing business loans. But now that we have started doing business loans, that ratio will, in all likelihood, change. But this year, I don’t think retail advances are going below 60 percent (of total advances). We have decided not to go below 55% in retail.

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And then we had a lot of high cost borrowing. Bulk term deposits accounted for about 36 percent of total deposits. It has come down to about 8 percent. Our CASA (current account, savings account) accounted for about 32 percent of total deposits. It is now at 52 percent. So this has helped us to improve our cost of funds and the cost of deposits.

We want to continue to consolidate and strengthen our balance sheet, which we have been doing for two or three years, and to grow. Now is the time to develop the loan portfolio from now on.

Stress seems to be building up in the retail portfolio of banks. Isn’t retail credit getting a bit risky?

Having decided to become a retail bank, we set up a reorganized structure… And today we have separate verticals for structured retail assets, micro, small and medium enterprises, agriculture and valuation as well. that collecting. We have separate processing centers. We have centralized operations. All of these steps are very gradual, ensuring that the risk is properly handled… So, in this way, our operations have been kept separate. And more importantly, this business model is scalable because retail is a volume game.

The history of retail banking is one of growth. I don’t think the potential has been fully discovered. It is a growing market. Today, the service sector is growing. People who work in the sector want car loans, home loans, personal loans, deposit deposits, make investments, and want various services… Thus, retail banking has growth potential.

Now, in such a severe pandemic, which occurs once a century, anything under the sun can be under stress.

The composition of our bank’s retail portfolio is a little different from that of other banks. We are not in unsecured loans and 93 percent of our personal loan portfolio is mortgages, which are secured. Ninety percent of borrowers are salaried employees with a credit score above 700. While the stress is there due to the pandemic, given this type of borrower mix, the stimulus is in full swing. made possible and easy. And today, even after the second wave of Covid, our collection efficiency is at the pre-Covid level, which is 94 to 94.5% … Thus, our retail banking model is well defined and we have a committed sales force.

You mentioned that you are ready for the future. Can you enlighten us?

As soon as economic activity improves further, we would like to do more business, offer more services to our customers … But at the same time, our focus this year will be on digital penetration. We are working on various digital products. So after making our balance sheet strong and robust, we would also like to make our infrastructure robust.

Our API-Banking is now also being prepared. This will help us integrate many applications so that we can integrate many fintechs, in the future.

API-banking will be integrated into our basic banking solutions platform. This will allow us to connect many applications for cross-selling third-party products, paying utility bills, and issuing credit cards, among others.

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