Expect NIMs to be relatively stable in FY12: ING Vysya

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Shailendra Bhandari, managing director and chief executive officer at ING Vysya Bank  expects the bank's credit growth to continue in the range of 22%-25%.

ING Vysya's Q2 net profit was up 53% at Rs 115 crore versus Rs 75.3 crore, year-on-year (YoY). Its net interest income (NII) was up 20% at Rs 304 crore versus Rs 254.2 crore (YoY).

Speaking to CNBC-TV18 about ING Vysya Bank's financial performance he said, " The Reserve Banks target for credit as of now is 18%. Until they revise that target it is possible for banks who are performing better than the market to do anywhere between 22% to 25%.

ING's net interest margin (NIMs) dipped to 3.02 in the June quarter but they were higher at 3.35 in quarter on the back of capital infusion done in June. The yield on advances improved by over 25 basis points in this quarter.

"Baring any unexpected moves by the central bank NIMs should be relatively stable. They could move in a 10 to 15 basis points range," Bhandari added.

Below is the edited transcript of Bhandari's interview with CNBC-TV18. Also watch the accompanying videos.

Q: Good set of numbers but do you think this kind of growth in advances 23% is sustainable for the rest of the year given what you see in the credit environment?

A: Our aspiration is that we would like to grow faster than the market with better quality. Last year the market grew at 23% we grew at 28%. This year the market has slowed down a bit, we are growing at 23%. The Reserve Banks target for credit as of now is 18%.

Until they revise that target I would believe that it is possible for banks who are performing better than the market to do anywhere between 22% to 25%. As of now it does look like this is feasible. But there are severe headwinds in the economy so we probably need to review this from time to time.

Q: What kind of band do you think could be a reasonable expectation as we step into the next year in terms of deposit growth that ING could do?

A: The Reserve Bank's target for M3 growth is now 15.5% which normally could assume that deposits will grow a little bit better than that. Once again as the market grows deposits somewhere between 16 to 18% which is a likely forecast then I would say that we would like to do a little bit better than that. We would hope to try and do somewhere between 17 to 20%.

Q: Your margins have come in improved as well in part because of capital infusion, but asset quality improved as well are you confident things can hold at this margin level for ING going into the next year?

A: We are quite delighted that the net interest margin (NIMs) came back because they have dipped to 3.02 in the June quarter they are back to 3.35. You are absolutely right that it has helped to some extent by the capital be raised in June but that is not the only thing.

The yield on our advances improved by over 25 basis points in the quarter and is substantial part of the repricing on our term deposits which had happened in June was now factored through. I believe that baring any unexpected moves by the central bank NIMs should be relatively stable. They could move in a 10 to 15 basis points range.

Q: So far you have not witnessed any stress on asset quality and you made the point that you are not exposed to airline, real estate which worries people the most. But from the sectors where you earn your bread and butter from is there any segment where you are a bit apprehensive about asset quality worsening during the course of the next few quarters?

A: As interest rates go up and the economy slows down delinquencies do worsen. To some extent we have been very lucky that we haven't seen that as yet but we are prepared for that. So we have hugely high provision cover ratio of almost 85%. Apart from the slow down in the interest rate growth there is also certain other factors - for example an industry linked to mining or iron ore or coal gets affected.

If a large automobile manufacturer goes on a prolong strike the ancillary manufacturers could also have some slow down. We are extremely cautious and watchful. We wouldn't be surprised if there was some worsening over the next few quarters. I wouldn't expect that as far as large coporates and secured retail exposure like mortgages are concerned. But we could see pressure for medium size or smaller corporates.

Q: Your CASA ratio is come off a bit in the current quarter - if the numbers are right to 32.6% so about 120 bps lower do you expect it to drift southward because that is about the only metric in your overall reported numbers which looks not so strong?

A: I do keep reminding people that among the south based banks our CASA ratio is probably the highest. It has come off this quarter and this is true for this system is that to some extent CASA is also influenced by lazy money with fixed deposits at 9.5%-10%. There is a strong disincentive to be lazy. I do believe that CASA will be under pressure for all banks. Could it go down another percent or so over the next few quarters certainly but do we expect it to come down dramatically, no.

Q: What do you expect to hear from Reserve Bank at the end of this month will it be that 25 bps? Many of your peers are suggesting even if there is another rate hike they are not likely to pass it down to their customers where do you stand on these both on those counts?

A: The Reserve bank is absolutely right that the biggest long term problem faced by them is inflation. But they do need to look at things on a case by case basis. It is given that the headline inflation is going to stay somewhere around 9.5 to 10% all the way till the beginning of the next quarter.

I believe that they will need to reassess what is happening in the global environment. Our economist feels that they will raise the rates. I hope they won't but it is entirely in their hands. We are one of the few banks who incidentally did pass on the last 25 basis point hike by the Reserve Bank. But I fully agree with other banks that we are now coming to a point where passing on interest rate hikes could be detrimental. it could lead to increase in delinquencies.

Raising rates is meant to chop off future credit, but it also hurts people who have taken loans when rates were lower. Those are the classes which add to NPLs. We haven't reached the cusp yet but we are getting close to cusp where banks may not really want to pass on rates to the full extent.