ING Vysya Q3 NIM grows 3.5%; no savings rate change for now

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ING Vysya Bank has clocked net interest margin growth at 3.5% this quarter. Speaking to CNBC-TV18, Shailendra Bhandari, managing director and chief executive officer of the bank says that margins will stabilize at current levels going forward.

ING Vysya has no significant exposure to airlines or power sector and therefore, risk is minimal. "The focus will remain on quality and we will not hesitate to slowdown," Bhandari says.

According to him, monetary easing in January is an unlikely event. "The RBI will need more positive data points before easing," he says.

On ING Vysya's growth path, Bandari says that there is no requirement of any further capital for the next two years. "We are comfortable with current CASA and are not looking to change saving rate for now," he says.

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: Do you expect to see any further improvement in your margins going forward from close to 3.5% level that you have clocked this quarter?

A: We were pleasantly surprised to see that the net interest margins picked up to 3.5% in this quarter. We would expect a seasonal, I would call it an easing of the margins this quarter, because not just us, but all banks, we meet our priority sector requirements largely in the March quarter, and some of these assets tend to be lower yield. However, this is really a temporary phenomenon and I would expect that whatever impact we will see on the margins, that would again stabilise post March-April, especially because we expect the Reserve Bank to start easing by then. So I am quite comfortable that our margins, with some minor seasonal blips, should stay here and eventually get better.

Q: There is some concern on the NPA figure though on an absolute basis and the fact that you have largest exposure both to SMEs and to infrastructure. Any stress that you are facing on that side?

A: We have virtually no exposure to infrastructure. I am happy to say that we don't do the exciting stuff like airlines and power and project finance and so on. We do SME. SME portfolio is actually rock solid. Whatever NPAs that we have done this quarter was actually something which we didn't need to do. This was the leftover part of the historical microfinance. Microfinance- we stop lending two years ago when the crisis in Andhra happened. We were waiting for the CDR process which is an industry-wide restructuring which happened in June. In that CDR, the industry basically restructured loans to microfinance companies, but they did not restructure the portfolios that have been bought. So on a conservative basis, we classified the entire portfolio that we have bought as NPA which we didn't need to do right now. We also completely provided for it which we certainly didn't need to do. So that is a one time clean-up as what I would call it.

Q: Your growth and advances have been steady at 22% over the last couple of quarters. Do you expect any sluggishness going forward or do you think you will be able to hold a 20% plus number?

A: It has slowed down. It slowed down from about 28% a year ago and 23% a quarter ago. We say that we will do better than the market. What we are seeing though now is that somewhere around 16-17% is where the market seems to be stabilizing. So we are hopeful that we shouldn't need to slow down too much, but our primary emphasis is on quality. So if we see any concerns on quality, we would not actually hesitate to slow down.

Q: As a banker, what do you expect to see in the upcoming policy, both in terms of whether there will be an actual cut on the CRR and what the tone of the Reserve Bank maybe?

A: I think the tone has already started to become dovish. I do believe that the Reserve Bank would need to see more data points before acting. There are sorted arguments for them easing whether it's in terms of CRR or rates. I am of the school which believes that they will wait for more data points. I am reasonably confident that they will ease in March-April, but possibly not in January.

Q: Any more fund raising requirements that ING will have? You have done an exercise already, but through the course of this calendar year, would you need to raise any capital?

A: No, we did a QIP in June of 2011 and we said that we would not be coming back to the market for at least two years. So we don't need to go to the market this year and though two years winds up in middle of 2013, we could probably delay raising capital if we want to till another year after that. So we probably don't need to raise capital for two more years; we are reasonably comfortable.

Q: What is going on in the saving rate front with the flux in rates because your CASA ratio is stuck at 32.6%, do you see any easing of that in the coming quarters?

A: We have not changed the rate that we offer on savings accounts. Like the bulk of the industry, we continue to offer 4%. Our CASA ratio at 32.6% I would like to point out that that is the highest among all the south-based banks. When I say south-based, whether that is private sector or public sector, we are the highest among all of them.

Also I would like to point out that typically, when you have a very high interest rate -almost 10% on fixed deposits, those tend to be adverse circumstances in which the CASA ratio normally grows. I would expect that once interest rates start easing for the system and for us as a whole, the CASA percentages would improve but as of now, CASA is obviously reasonably stagnant.

Q: How is liquidity right now in the system? There has been so much debate about the CRR cut, not so much the repo rate cut in the current policy. Is there a strong case for it?

A: Liquidity is tight. I think the daily LAF borrowings are 2.5-3 times the 1% deficit that the Reserve Bank has stated. I do believe that you can't have a CRR cut without it being part of monetary policy. The Reserve Bank has repeatedly said that liquidity easing is something they would do through open market operations (OMOs) rather than a more permanent cut on the CRR. That's the reason why we are sort of hesitant in predicting that they will cut rates and CRR this time. But there is no doubt that if the market remains Rs 150,000 crore short, liquidity has to be added.