"IOB Intends to Transfer Half of Its Loan Portfolio to MCLR-Linked Loans, According to Ajay Kumar Srivastava"
Indian Overseas Bank (IOB) has announced a strategic focus on aggressive expansion in key sectors for the current fiscal year, aiming to maintain credit growth and margins under changing interest rate conditions.
The bank's strategy includes a significant emphasis on 14 government-identified Production Linked Incentive (PLI) sectors, as well as continued growth in the retail, agriculture, and MSME segments. According to Ajay Kumar Srivastava, the bank's Managing Director and CEO, there is a healthy demand for credit across these areas, despite limited interest from very large corporates.
To manage interest rate risk and align lending rates more closely with market benchmarks, IOB plans to shift 50% of its loan portfolio to MCLR-linked loans. This move is expected to help the bank maintain margins amid the anticipated rate-cut cycle by the Reserve Bank of India (RBI).
In response to RBI's recent rate cut, IOB has already reduced its Repo Linked Lending Rate (RLLR) by 50 basis points, lowering it from 8.85% to 8.35%. This adjustment aims to balance competitive lending and margin preservation.
Infrastructure and logistics projects, including those under the Centre's Gati Shakti programme, are also a focus area for the bank. To support this, IOB is increasing the share of MCLR-linked loans in its corporate and agriculture portfolio.
IOB has recently partnered with Amul and Richplus to onboard 100,000 farmers for organic farming. MCLR loans for these farmers will have a rate reduction, but with a lag. Despite the potential stress on margins, the bank aims to maintain them around 3%.
In summary, IOB's strategic approach leverages sectoral opportunities and portfolio management to sustain credit growth and margins under changing interest rate conditions. The bank's focus on key sectors, aggressive lending expansion, and strategic portfolio management position it well for the current fiscal year.
- IOB's strategic focus includes expanding in key sectors, such as the 14 government-identified PLI sectors, retail, agriculture, and MSME segments, which show a healthy demand for credit.
- To mitigate interest rate risk and keep lending rates in line with market benchmarks, IOB plans to shift half of its loan portfolio to MCLR-linked loans.
- In response to the RBI's rate cut, IOB has lowered its Repo Linked Lending Rate (RLLR) by 50 basis points, aiming to strike a balance between competitive lending and margin preservation.
- IOB is increasing the share of MCLR-linked loans in its corporate and agriculture portfolio to support infrastructure and logistics projects, including those under the Gati Shakti programme.
- In an effort to encourage organic farming, IOB has partnered with Amul and Richplus to onboard 100,000 farmers, offering them MCLR loans with a rate reduction, despite the potential impact on margins.
