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Oct 11, 2012, 09.06 AM IST
Private sector lender IndusInd Bank expects to grow its business in the range of 25-30%. However, its core focus remains on basic banking of lending and deposits. According to Romesh Sobti, MD & CEO of the bank, it does not face any threat of asset quality. Both the corporate and retail loan books are not causing any worry.
Private sector lender IndusInd Bank expects to grow its business in the range of 25-30%. However, its core focus remains on basic banking of lending and deposits. According to Romesh Sobti, managing director and CEO of the bank, it does not face any threat of asset quality. Both the corporate and retail loan books are not causing any worry.
In an exclusive interview to moneycontrol.com on the sidelines of its quarterly (July-September) result announcement , he spoke of increasing the share of current account and saving account (CASA) ratio, the cheap source of funds for a bank, to 30-35% (currently at around 28%). At the same time, it plans to reduce portion of bulk deposits from 50% to 30%.
Here is an edited excerpt:
Q. After a series of reform measures by the government, do you see any kind of uptick in lending?
A. It is too early to say it an uptick. Retail lending has not gone down at all barring some exceptions. Long term retail players have seen improvement in their market share.
However, some sectors including power, real estate, construction and infrastructure have certainly slowed down. Risk aversion has risen there.
If you are a long term lender, you don't start off lending next day. There are three factors to it: liquidity, interest rate and then risk aversion. So, there has to be liquidity, interest rates are ready to fall and then risk aversion has to go away. Risk aversion is the function of what you have in your book. So if you have a bad book, then you are risk averse. We are expecting a loan growth in the range of 25-30% in FY13.
Q. Are you planning to cut interest rates?
A. If there is a rate cut signal from the RBI, we will cut the base rate (the benchmark rate below which a bank is not allowed to lend). Moreover, a cut in the cash reserve ratio (the portion of deposits banks are mandated to keep with RBI) is more of a liquidity signal. The benefit of CRR cut for players like us is very marginal. To the system, it is decent. But a rate cut signal cannot be ignored.
Q. The ratio between retail and coporate loans stands at 52:48 at the bank. Will the same proposition continue?
A. It will be broadly in that range. Essentially, it will be 50:50 with 5% movement up and down. We are all right with both the books. The loan book quality does not worry us. Book quality is not pushing us towards retail but yields are pushing up. Our domain expertise too supports us for retail. We have strong domain expertise for vehicle finance and we dominate in this sector. We have registered over 40% year-on-year growth on vehicle finance.
Q. Do you plan to slash your savings deposit rates?
A. There is a linkage between savings and fixed deposit rates. I would say that you link it to one year fixed deposit rate. Saving bank accounts are for longer tenure. They are almost perpetual in that sense. If longer term fixed deposit rates fall, the difference between one year deposit and present savings bank rates narrows. Then it makes a case for a cut in savings deposit rate.
Today the difference is almost 300 bps. If this difference narrows to 100 bps then you reduce savings bank rate because then the cost of savings bank will be higher than the fixed deposit rate.
Q. How do you propose to bring down your bulk deposits, expensive for banks?
A. It has come down from the peak when the management change had taken place in March 2008. Our CASA ratio was 13% then. There were hardly any retail deposits. The share of bulk deposits were at 80-85%. We have already brought it down to 50% over last four years.
This will go down further but it will not vanish. So, bulk deposits will go down to 30-35% while my CASA will reach 30-35% as against 27.98 currently. The retail deposits (besides CASA) will increase its share to 30%, so that the rest 30-35% (100-30+30) will remain as bulk. It will happen over next two three years. We call it a bulk deposit when the amount is Rs 5 lakh or above.
Q. Are you in favour of abolishing CRR?
A. Well, this cash reserve or statutory ratios are one of the strong points of Indian banking. The rest of the world has of late, realized its importance. We have CRR and Statutory Liquidity Ratio (SLR, the portion of deposits banks are required to invest in government securities). Now, the western world is talking about creating such reserves.
The question is how much can you determine. Whether the total of CRR or SLR should 30% or 25% can be debated. But I would imagine, some sort of statutory reserves should be maintained. I don’t think, interest on CRR be it 3% or 4% is a big driver. CRR is a partly liquidity management tool but essentially it is a reserve creation. The concept of abolishing reserve, I don’t really prescribe it. How much reserve it is necessary for the health of the system is a matter of debate.
Q. What are your capital raising plans?
A. To support our growth, we are planning to raise capital this year only (2012-13). We will raise equity capital in such a manner so that we need not to go the market next three years. The quantum of funds, I cannot tell you unless the board finalizes it.
We are constantly engaged with the board. As we get a green signal from the board, we will do an equity issue. Timing is important as to when should we do and are the markets ripe for that? We are engaged with the investment bankers on this issue to determine the timing. We have already the overriding enablement from the last AGM. Our tier one capital adequacy ratio is above 11%. We don’t want to fall below 10%.
Q. Do you plan to float any subsidiary arm?
A. We have no plans for subsidiaries. Our basic business model is banking (deposit and lending or branch banking) but no para banking. However, we do third party sales of mutual funds and insurance. We had acquired a credit card portfolio a year back. It is running very profitably. It is generating around Rs 3 or 4 crore profit every month. This is the only unsecured part of the book. It stands around Rs 303 crore outstanding compared with our total loan book of Rs 39,427 crore.
Tags: IndusInd Bank , Romesh Sobti, managing director , CEO, CASA, interest rates, savings deposit rates
Action in IndusInd Bank
Jun 20 2013, 11:06
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Jun 20 2013, 11:06
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