No discernible trends in CV loans: IndusInd's Sobti

Saikat Das
moneycontrol.com

IndusInd Bank is trying to seize opportunities in advisory services. With a network of 500 branches, the private sector lender is strengthening its investment banking arm by broking merger and acquisition as well as private equity deals.

"We are going to focus more on investment banking. In M&A space, the strike rate is lower. Here, we are now building up capabilities. We have hired a few people to work on the M&A side. We want to strengthen on this part. In private equity too, we are moving up the chain," Romesh Sobti - MD & CEO of the bank told moneycontrol.com in an exclusive interview after announcing Q4 results.

Equity market cheered IndusInd Bank's quarterly performance and its shares on Thursday hit 52-week high at Rs 456 on NSE.

Also read: IndusInd Bank Q4 net rises 38%, shares hit 52-wk high

Meanwhile, the market is a bit apprehensive of the bank's credit exposure to commercial vehicle (CV) segment. Recently, Crisil Research and India Ratings, both agencies expressed concern over CV loans for the entire industry.

However, Sobti ruled out any such credit quality threat citing the nature of customers whom IndusInd Bank disburses CV loans.

Below is an edited excerpt of the interview:

Q. Do you sense any economic revival in the offing?

A. There is no specific indication of immediate revival. But the sentiment has definitely changed. Now, the rate of inflation is cooling off and commodity prices are softening sharply. Therefore, there is going to be easing of current account deficit (CAD). And it will have cascading effect.

So, the expectation is that interest rates will start moving down. However, we have not seen signs of green shoots yet. But certainly, expectations have increased.

Q. Will a repo (policy) rate cut give enough elbowroom to banks to cut their rates?

A. Repo cut gives you the signal and CRR reduction gives you the ability. In the next monetary policy (on May 03), RBI could cut rate by 25 – 50 basis points. The question is that whether it comes with CRR cut or not. 

Q. Rating agencies have raised concern over commercial vehicle (CV) loans. You have quite a good exposure to this segment. Is there any stress?

A. We are not seeing any discernible trends in CVs. If you look at our CV portfolios, you have to look at non-banking finance company like Sundaram Finance. We finance small road transport operator, who will sell gold to repay his dues. It is a livelihood loan for him. He earns bread and butter using this vehicle.

We don't finance fleet operators. Large fleets (100 or 200 trucks) along with first time users and buyers come under stress. Our policy is not to do business with them. Our CV book is pretty balanced. Currently, our CV loans form around 20 percent of total loan book.

There are segments of CVs like heavy, medium, light, three/two wheelers and utility vehicles as well as construction equipments.

What is really being affected is the medium and heavy sectors wherein sales have come down. This segment has come off 22 percent year-on-year overall.

Q. Are you expanding advisory services?

A. We are going to focus more on investment banking. In M&A space, the strike rate is lower. Here, we are now building up capabilities. We have hired a few people to work on the M&A side. We want to strengthen on this part. Under investment banking, we do debt structuring, syndication and debt advisory. So far, M&A advisory is not a big part of our investment banking.

In private equity too, we are moving up the chain. We have done a few deals. We give advisory to our customers on valuations.

Q. What is the plan for gold loan product?

A. We had announced about it two months back. Due to the current price movement in gold (decline), we are not at all backing off. Our business plan is now ready and we will launch it in next three months.

Q. How is the credit card business going on?

A. The book size is only Rs 350 crore. It is very small but it is doing very well. We earned a PBT (profit before tax) close to Rs 40 crore. We have total 1,000 accounts in this vertical. It is fee-based business. It is more dedicated on spends. The card business will double this year to Rs 700 crore. We will double the PBT as well. We are also open to acquiring new portfolios. But we don’t buy anything to please the market but it has to fit in our profile.

(IndusInd Bank had acquired Deutsche Bank's credit card business for over Rs 224 crore in 2011. As on January 2013, the private lender had about 2.2 lakh cards outstanding.)  

Q. You improved the share of CASA to 29.32 percent compared with 27.30 percent. Will you be able sustain the growth in a falling interest rate regime?

A. We don't have high dependency on interest rate offered by SA (6 percent). There are so many other things happening. You see, the way we differentiate our products. Interest rate is one of the things that affects.

Even if interest rate falls, it will fall in tandem with fixed deposit rates. It won’t drop sharply. If a fixed deposit scheme of 180 days gives 6% and we give 6% on savings rate. Then, it does not make sense.

Customer is important. We have used this (SA) as a hook. We are not solely dependent on interest rate on SA. We can cross-sell a lot of products to the same CASA customer. We can do forex, auto loans, mortgages and so on.

Q. What is the headroom for foreign currency borrowing in FY14?

A. It is the function of the ability and willingness of foreign players to place money with me. It also depends on my rating. India Ratings on Wednesday upgraded our long term rating to AA.

Q. What are your views on anti-money laundering (AML) in India?

A. There is a plenty of check and balances in the system. It is only the implementations. We don't need fresh guidelines. We need reiteration of guidelines. KYC (Know Your Customers), anti-money laundering…there are multiple layers.  

For example, we don't open account at branch level. Those are all centralized. There is no discretion. If back office and front office are separated, anti-money laundering cannot happen. A salesperson can offer whatever he wants to. But there is no systemic risk, it is true.

Any bank will have AML alert system. Suppose, you are putting Rs 10,000 three times in three days. The (internal bank) system will immediately raise alert – what’s happening?

Incentive culture is responsible for any alleged ALM case. Incentives are our way of life around the world. The question is, there has to be a balanced score card. If somebody commits some fraud to sell a policy but later it lapses after ten days, there is no incentive (for the selling staffer). It is incorrect to say, incentive is a destroyer of morality.

saikat.das@network18online.com