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Informist, Thursday, Oct. 16, 2025

--Indian Bank MD: Gross NPA ratio in FY26 to now avg 2% 

--Indian Bank MD: May not need 5 yrs to adjust to RBI's draft ECL norms 

--Indian Bank MD: May be able to adjust to RBI's draft ECL norms within 1 yr 

--Indian Bank MD: Not aware of govt's plan to merge PSU banks as of now

By Priyasmita Dutta and Krity Ambey 

NEW DELHI – Indian Bank is hoping to adjust to the Reserve Bank of India's expected credit loss framework within one year, Chief Executive Officer and Managing Director Binod Kumar said Thursday. "...may be five years may not be required. Maybe in one year itself, we can do that," Kumar said in a post-earnings analyst call.

The RBI's draft norms on the expected credit loss framework, which will take effect from April 2027, mandate banks to set aside more funds for potential bad loans on implementation. It also mandates banks to classify non-performing financial assets into three categories based on the period for which the asset has remained non-performing and the "realisability of the dues", while continuing to apply existing rules for classifying non-performing assets.

The expected credit loss framework is designed to be implemented with a suitable glidepath of nearly five years, allowing banks to transition smoothly. The draft norm issued on Oct. 7, as part of the central bank's 21 developmental and regulatory policies for the banking sector, was announced after the Monetary Policy Committee meeting outcome on Oct. 1.  

"But one thing I will assure all of you, impact will not be very huge," Kumar said while speaking about the impact on the bank's provisions once the new norms kick in. The public sector bank's provision coverage ratio at the end of September quarter was 98.28%, up 8 basis points from the trailing quarter and 68 bps from the September quarter last year. 

According to Kumar, in initial days when the expected credit loss framework takes effect, the 98% provision coverage ratio may be difficult and look very high, although gradually, it will be a good level to maintain. "But gradually, I mean in long term, maybe when a bank has inherent strengths, then always better to have some cushioning," he said.

In the quarter ended September, Indian Bank's net profit exhibited a healthy performance, buoyed by the biggest ever fall in provisions. Beating Street estimates, the public sector bank reported a nearly 12% on-year rise in its profit, with provisions falling for the eighth consecutive quarter. Indian Bank's net profit in Jul-Sept was INR 30.18 billion, higher than analysts' estimate of INR 28.15 billion. Sequentially, the net profit was up 1.5%. Indian Bank's provisions were down 33% on year to INR 7.39 billion in the September quarter, with provisions for bad loans more than halving during the quarter. The bank set aside INR 3.82 billion as provisions for bad loans, as against INR 8.37 billion set aside in the corresponding quarter a year ago. 

The sharply lower provisions were due to the bank's improving asset quality, much better than industry peers. The Chennai-based bank's gross non-performing asset ratio declined to 2.60% as of Sept. 30 from 3.01% at the end of June and 3.48% as of Sept. 30, 2024. The net non-performing asset ratio fell to 0.16% from 0.18% as of Jun. 30 and 0.27% at the end of September 2024. Kumar Thursday revised his view for the bank's gross NPA ratio at the end of 2025-26 (Apr-Mar), pegging it to now be less than 2% from the 3% projected last quarter. 

Speaking about the speculation on the likely next round of public sector bank merger, Kumar said that he was not aware of the government's plan on the reform yet. In August, the government had organised two-day-long event called 'Manthan' to discuss the next rounds of banking reforms. Since then, there have been media reports that the government has been planning next round of state-owned bank consolidation. 

"Such sensitive issues will not be discussed in that type of gathering...So there was no discussion on that," Kumar said. "Maybe the government is thinking, but I'm not aware at least," he said. 

After the government held the last such event in 2016, former finance minister Arun Jaitley had said that bankers had supported the proposal of consolidation of PSU banks to have strong banks rather than having a numerically large number of banks. The Narendra Modi government then carried out mammoth PSU bank mergers since 2017. The process was kickstarted by merging five associate banks of State Bank of India--State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore, State Bank of Hyderabad and State Bank of Patiala--along with Bharatiya Mahila Bank into State Bank of India in 2017.

Thereafter, the government in August 2019 announced a mega-merger plan for 10 public sector banks. Effective Apr. 1, 2020, Oriental Bank of Commerce and United Bank of India were merged into Punjab National Bank, Andhra Bank and Corporation Bank were merged into Union Bank of India, Syndicate Bank was merged with Canara Bank and Allahabad Bank was merged into Indian Bank. 

According to Kumar, the government's last rounds of PSU bank mergers were "good" for the banking industry. Shares of the bank closed at INR 771.05 on the National Stock Exchange, down 0.5%.  End

Edited by Akul Nishant Akhoury

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