IndusInd Bank expects 25-30% growth rate in FY13

In an interview with CNBC-TV18, Romesh Sobti, MD & CEO of IndusInd Bank said that going forward, the company is looking to improve its margins as the net interest margin (NIM) is bottoming out. He also expects the bank's current account-savings account (CASA) base to increase in the current quarter.

Sobti clarified that there is no stress on the retail asset book at this point and added that the bank's fee growth is going to exceed loan in this fiscal. Overall, the bank is looking to hold on to its growth rate of 25-30% for FY13.

Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video

Q: There was some concern on what happened with margins this time around primarily because of the way you saw wholesale rates cooling off, are you worried about the margin performance for the second half and whether you will have to see some slippage there?

A: No, I think we are seeing the bottoming out on the whole margin story. The industry as a whole expected that rates would fall during this quarter, but the actual falling of rates happened towards the end of June and mostly in July.

We have had a small swing of 7 bps, last quarter we were up 5 bps and that was caused by the change in the mix of borrowings that we have. But, I think the overall story of margins is bottoming out. We should see an improvement this quarter onwards.

Q: Given wholesale funding cost, where do you see margins heading up to, if 3.2% is indeed the bottom, do you see yourself going back to 3.5% kind of levels?

A: We had peaked about a year ago at about 3.6% and if you notice, half our book is now a fixed rate book at a pretty high rate with yield of over 16%. As deposit rates cool off, you see a margin expansion which is built into our loan book. So certainly we want to progress back to the peak that we had reached.

Q: Can you update us on what is going on with the current account-savings account (CASA) ratio and whether you see that improving because your savings deposit growth rate has been strong but, current deposits apparently have been lagging, where do you see CASA headed in the next two quarters?

A: The CASA story got stalled in the last twelve months because you don’t expect people to keep interest-free money available in banks. Demand liabilities in the system also shrank by almost 16-17%. But, the savings account has got a pretty strong uptick. The current account is also a function of a lot of the IPO business which deals with bond issuances, the dividend warrants and they also slowed down over the last six months.

We expect a pick up now on those fronts. Even in this quarter, we have seen uptick in current account. Going forward, we should start progressing on increasing our CASA base.

Q: The heartening part is that asset quality remains stable, there has been no restructuring this quarter but any caution that you would draw especially in terms of retail slippages and whether you are priming yourself for that over the course of the next six months?

A: Retail portfolio has held up very nicely and inspite of the book growing on a pretty healthy growth rate, we see absolutely no adverse trending in retail delinquencies. You can look forward to retail for two quarters. We are not seeing any trending. Ofcourse, if there is a continued slowdown it will impact industry as a whole, but so far we are seeing absolutely no stress in our retail book.

Q: A lot of banks and bankers entered this calendar year with a much different view of what would come through in terms of rate cuts and whether rates would be moving directionally, what is your sense of how things are going to shape up over the next six months, the Reserve Bank of India (RBI) has shown their hand quite clearly, would you say it is a static rate regime?

A: The surprise item in this whole story was 50 bps rate cut upfront. I think that was a big relief which was provided by the RBI to begin with. That relief has not yet been passed through. So if you see a change in stance from a hawkish stance to a more positive stance from RBI, even without cutting the rates, I should imagine the rates should start coming down.

Q: This quarter loans grew by more than 30% but what kind of credit growth are you looking for the rest of the year because there has been some winding down or tapering down of credit growth forecast from many of the banks?

A: The only guidance we gave is on our balance sheet growth and our fee growth. We have always held that we will grow by 25-30% and I think over 17 quarters, we have held that growth rate.

We are still seeing a pretty good throughput. We are a working capital bank as we have always said. The throughput is pretty strong, the retail side is also growing along at almost 40%. We would imagine that we would keep our guidance on credit growth of 25-30% and we have always said that our fee growth will exceed loan growth. And we have kept our promise over 17 quarters.