After having restored its profitability over the past two years, IndusInd Bank is geared to achieve scale and is likely to double its client base in two years, believes Managing Director and Chief Executive Officer Romesh Sobti. In an interview with Sheetal Agarwal, he talks about the road ahead for the bank and core issues in the sector. Edited excerpts:
What have been your focus areas and what is the road ahead?
In the first phase in 2008, we set in place a business model of a universal bank offering all products and services to corporates and the consumer. In a distribution model, you don’t do everything yourself and moreover, you distribute third-party products, as well. Then, about a year ago, came the next phase of growth. Scale with profitability is what we are looking at. That is our road map for at least the next two years. In pursuance of that road map, we have opened new branches. So, from 180 branches we inherited, we will have 400 branches by March and 650-700 by March 2014. By this time, we will more than double our client base. The balance sheet will also double from Rs 52,000 crore to Rs 95,000-100,000 crore.
What would be the impact of the savings account (SA) deregulation and the higher interest rates the bank is offering customers?
When we assessed the regulation, there were two things in our mind. One, it was an opportunity to fast forward our acquisition of new customers. A new customer with a savings account is the one who buys other products. Cost is higher to acquire, but I want the customer because then I can cross sell. Second, we saw even at six per cent in today’s market, this is cheaper to other 90-day instruments by at least 3.5 per cent. So, there is a short-term opportunity on balances, as well. But as rates fall that will equalise. So, ultimately, what rate will you give on savings bank account? I don’t think you’ll pay more than the 90-day fixed deposit rate. For us, the impact has been in these two months since we launched it. Our acquisition rate has gone up by 10 per cent. And, in the two months of the December quarter over the September quarter, our SA balances went up by 21 per cent. The question is will the six per cent move you to me? Maybe not. Because you are doing a lot of things with your existing bank. We are focusing on higher innovations in our products to drive customer acquisition.
How is the loan book quality shaping up?
Aren’t you seeing any pressure on the asset quality of commercial vehicle (CV) loans?
The most contrarian phenomena seen today are in the CV space. There is resurgent demand, as freight rates have gone up. When freight rates go up, collections improve and delinquencies go down. Those two trends are visible now. So, demand for CVs and light commercial vehicles has really surprised the market. Our disbursements are at a peak and these have been scaling new peaks over the past six months. We are not seeing any pressure on asset quality.
What is your outlook on loan growth?
We maintain our loan growth guidance of 25-30 per cent. We are seeing strong growth. Over the next year, our consumer finance-corporate finance ratio will shift from 48-52 per cent to 50 per cent apiece. This means our consumer finance will grow faster than corporate finance. It will be driven by the vehicle finance sector.
What trend do you see in net interest margins (NIMs)?
I think we have seen the bottom on the NIM because we are seeing stability in our cost of funds on one side and yields on the other side. The consumer finance book is a high-yielding fixed rate book. So, when rates fall, this does not fall, but the cost of deposits falls. So, margins expand. That’s why we have allowed this book to grow faster than the corporate book. The corporate book is a working capital book, which will be repriced immediately as the cost of deposits goes down. So, I think for every per cent the cost of deposits falls, there is a NIM accretion of 25-30 basis points. So, we are optimistic margins will expand from here onwards. We want to get 3.61 per cent, if not higher.