MUMBAI: Indian Bank MD & CEO Binod Kumar has stated that the marginal cost of lending rate has bottomed out and may start increasing as the cost of bulk deposits for banks has gone up. He added that the upward pressure on bulk deposits could also shift to retail deposits, and that rising yields in the bond market would mean limited treasury profits.
Credit Growth Outstrips Deposit Growth
Kumar noted that credit growth is outpacing deposit growth. If this trend continues, there will be pressure on resources. The bank is closely monitoring the situation.
ECLGS 5.0 to Boost Credit Demand
According to Kumar, the Emergency Credit Line Guarantee Scheme 5.0, announced by the government to provide liquidity through banks for businesses affected by the West Asia crisis, is expected to increase credit demand. “This facility is for borrowers taking working capital from us. Based on past scheme experience, not all borrowers may opt for it. We anticipate additional borrowing of Rs 12,000 to Rs 15,000 crore under this scheme,” he said.
Capital Raising and Provisioning
Indian Bank is looking to raise Rs 5,000 crore during the current financial year. The proceeds will be used to make provisions for expected credit loss under new rules that require banks to set aside money even before a borrower defaults, if signs of financial duress appear. “So far, we have not seen major stress on borrowers due to the West Asia crisis. If there were any, it would be reflected in an increase in special mention accounts (SMA),” Kumar explained. SMAs are accounts where the borrower has not defaulted but has missed timely payments, indicating stress.
Impact on Small Businesses
A report from State Bank of India’s research department suggests that the scheme will benefit 1.1 crore small businesses.
