Fall in commercial vehicle (CV) financing led to lower retail growth in Q1, says Romesh Sobti, managing director and chief executive officer of IndusInd Bank.
The bank reported 42 percent year-on-year surge in its net profit at Rs 335 crore. A robust growth in other income and net interest income (NII), helped the lender to post forecast-beating net profit.
In an interview to CNBC-TV18, Sobti says, the bank will continue to post stable margins as there are very strong signals for rate reductions.
"Incremental expansions will happen because the cost of funds as compared to the cost of deposits have been managed pretty well to reduce the cost of funds. So, we do expect small increases in the coming quarters as well," adds Sobti in an interview to CNBC-TV18.
Below is the edited transcript of Sobti's interview to CNBC-TV18.
Q: Before we talk about the growth parameters for the bank, people are a bit concerned about what came through on the delinquencies for the commercial vehicle (CV) side that has been a spot of worry for the bank in the past. Are you confident those problems can be ironed out going ahead?
A: I do not think we have had any worries. Compared to the rest of the market, our portfolio has behaved exceedingly robustly. There are very small movements that we see even on the CV side. For the last year and a half, we have been saying that the construct of our CV portfolio is not akin to everybody in the market. So, overall for the CV portfolio of 5 basis points (bps) increase or decrease is marginal. I do not think we have any real concerns on that basis.
Q: While your retail book growth is still strong around 24 percent, earlier you were growing at more than 30 percent, would you say that there has been some tapering off of growth from the retail side?
A: The market has certainly shrunk in the area that we work in and that is the area of vehicle finance especially in the larger truck variety. However, I think things are going apace on two-wheelers, personal products, cars and the light commercial vehicle category. So, it has been a mix but overall, I think the market has shrunk. We have gained market share and our disbursements in this quarter also are almost same as Q1 of last year. We have certainly come off the highs of 40 percent and 35 percent. We will now be at a steady around 25 percent.
Q: Your fee income though continues to chug along at more than 30 percent plus, do you see that as sustainable kind of growth?
A: That has built into the business model. So, it is very diversified fee flows. We have always said that fee growth will exceed loan growth and for 21 quarters we have demonstrated that. Hence, there is a fair degree of confidence that we will be able to retain this growth rate.
Q: You are also at your best possible in terms of where the margins have been this quarter. On that account do you expect the year ahead to be a bit tougher for banks generally in terms of maintaining their margins?
A: So far, margin expansion has mostly happened because yields haven’t come off for the entire industry. Some movements have been seen downwards on the cost of deposits. We have raised our net interest margin (NIM) by about 50 bps in the last three quarters.
Going forward, if we start seeing very strong signals for rate reductions, then yields will also come off. Margins would remain stable. I do not see any further contraction for the industry as a whole. For us, incremental expansions will happen because the cost of funds as compared to the cost of deposits has been managed pretty well to reduce the cost of funds. So, we do expect small increases in the coming quarters as well.