Not easy to improve CASA ratio in current set-up: ING Vysya

ING Vysya delivered yet another set of strong numbers this quarter, with net profit rising a better-than-expected 33% to Rs 130 crore. However, one wrinkle was the decline in the current account to savings account ratio.

Speaking to CNBC-TV18, MD & CEO Shailendra Bhandari says that they were facing challenges due to the interest rate scenario in the country. “Retail customers have been taking advantage of the opportunity of earning 9.5-10% on fixed deposits,” he said. Conversely, current account flows increased, bringing down the ratio to a level the bank was comfortable with.

On the flip side, the challenging macro environment hurt the loan growth of the company, but net interest margins remained stable around 3.33%. Going forward, Bhandari says a drastic change in the interest rate scenario will help them pick up margins.

Below is an edited transcript of his interview with Udayan Mukehrjee.

Q: The only wrinkle is that current account-savings account (CASA) ratio which was consistently going up has eased off a bit to 33% in the current quarter. Do you think it has plateaued out, the constant improvement that you were registering quarter-after-quarter?

A: Results are not only very strong, but progression of what we have been showing for several quarters. Yes, the CASA has been a challenge, but this is not just for us. I think most banks are showing a worsening in the CASA ratios. Especially for the savings account aspect of it, retail customers have been taking advantage of the opportunity of earning 9.5-10% on fixed deposits, and to be honest we encourage them to do that because we offer them a variety of fixed deposit products.

Having said that, what we are finding is that the current account flows have been coming in, so we had a good increase in our current account float. We do hope that at some stage once the interest rates come off, the CASA will start to go up again, but we are comfortable at 33%.

Q: Your net interest margins for the last couple of quarters have stabilized in 3.3% kind of range. Do you see the prospect in the current environment of getting back to that Q3 high of 3.5%?

A: If you look at the last three years, our NIMs have been roughly 3.25-3.3% and I am comfortable in saying that we will continue to deliver towards that. If indeed there was a dramatic change in the interest rate environment it could go up, but I think we are reasonably comfortable in saying that we see the margins broadly at a steady level.

Q: Any concern that advances growth is outstripping deposit growth by quite a margin and how you see that progressing going forward?

A: I think you are right, that is a significant issue. I think liquidity growth has been a problem, the Reserve Bank of India (RBI) has talked about it and indeed that is one of the reasons why you see CASA is also having a tough time growing. I do believe that if the system has to grow around 16-17%, deposit growth has to pick up. So we will do better than the market, but it would be difficult to go against or opposite to the direction of the market, so we do hope overall deposit growth picks up.

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Q: Anything in the environment which leads you to believe that the kind of pace at which you are growing to the loan book might slip off in the quarters to come?

A: We have constantly said that whatever we do is relative to the environment. So that is why we refrain from giving a number as to what we are targeting on growth. It is like trying to drive fast down a slow road; if the road is bumpy, you have to take some course correction.

So for example, we believe the target that the RBI has of 16-17% credit growth for this year will be challenging for the market. It may turnout to be little lower, in which case we would do a lot better than that, but we will ofcourse be guided by how the market does.

Q: Any signs of pain coming in from the SME segment at all given the kind of economic environment?

A: So there are lots of warning signs and this is not just SME segment. They have been there by the way for the last two-three quarters because as we have talked, high interest rates, slowing economy and the depreciating rupee is a killer combination.

Having said all that, at times people have accused me of saying that something is going to happen, but it doesn’t. I have always disappointed myself by saying it will get worse and it hasn’t, but we do tend to be cautious. We continue to grow, but we are being extremely cautious. For anything which is borderline, our answer will be no, we won’t do it and we are confident that the overall quality of our portfolio will hold itself.

Q: Are you expecting good things or a rate cut, or do you think that would be being unrealistic in the light of what the RBI said last time?

A: The RBI loves to surprise. I think people are now expecting a rate cut this time so I am hoping that they might surprise us. That is my personal hope now.

Q: That is not very sound logic is it to expect a rate cut?

A: There is logic. We are enough people who feel that the RBI should focus on growth rather than inflation. A lot of what inflation is all about is beyond their control, but eventually they have to decide, they do get some statistics we don’t see. Apart from the hope and prayer, I do believe there is enough logic as well for them to take a bold step and start cutting now. It would be an important signal, so let us see if that happens.