Bhaskar Ghose, MD at Indusind Bank says that the bank witnessed some depression in our margins although the net profit was up.

Excerpts from the exclusive interview with Bhaskar Ghose:

Q: Take us through your earnings. We understand that you are expecting an improvement in margins in FY08?

A: That’s correct because we saw some depression in our margins although our net profit was up. Most of our other key parameters were up but our net interest margin was lower partly because there was no securitisation on upfront income impact and partly because our high proportion of term deposits made us more vulnerable to interest rate increases.

But this year as we keep reprising our loans upwards and as cost of deposits now will stay down partly because our CASA proportion are gradually growing up and the general expectation in the market is that interest rate increases may not be so steep this time.

So it is the combination of all these things; higher yields on advances, higher CASA proportion since most of the other banks have pretty much fluttered off as far as CASA proportions are concerned.

We are still fairly low but we are now growing because we have new branches and new products. So CASA is going to grow and the interest rate scenario will probably turn a little more benign as much as we are not going to see that rate of increase. So as a result of that, we expect our NIMs to approach 2% by the end of this financial year.  

Q: Do you expect volumes to take a beating? We have had slew of CRR and interest rate hikes in the last six months. Would it begin to tell? Would you see that net interest income could get hit or even total interest income could get hit in terms of volume?

A: We haven’t seen much sign of that yet because the kind of areas and kind of customers we are catering to, most of them are borrowing from us for their businesses and not for the sake of personal consumption. So the interest rate increases, the most price sensitive sector are the sectors that borrow for personal consumption and our exposure to that sector is virtually zero.

Our exposure is to commercial vehicles as these trucks are used purely for business purposes; to buses, which are used to augment fleets of transport vehicles, to SMEs, which are using it for their businesses.

Nobody wants to miss out on this 8-9% GDP growth. So, as far as we are concerned, so far, we really haven’t seen any slowdown in our advances growth. In fact, towards the end of the year, we had to lay off advances just in order to make sure that our capital adequacy targets were met and that we didn’t have to take high cost deposit to support them.

Q: Will you be coming to market to tap capital?

A: We did raise capital towards the end of the year. We already did a GDR issue; a limited one because we didn’t think the price was right but we needed the capital.

So we did the GDR issue of Rs 147 crore equivalent in dollars and we did about Rs 50 crore of tier II bonds plus two upper tier II tranches that we issued during the year; we were able to close 2006-2207 at 12.54% capital adequacy as against 10.54% March of last year.

So as of now, we are fairly well set. We have room to raise little over Rs 300 crore of new subordinated debt, tier II bonds.

So I do not think we really need to raise equity capital, at least this financial year and by the time this year ends, our results we hope, will continue to improve. Market conditions will also move in our favour.

So our share price should also increase, at which point of time, it will be a little more attractive for us to raise new capital than it is today.