IndusInd Bank expects FY12 loan growth at 25%

IndusInd Bank was the frontrunner in the banking space this time in releasing financial figures for the quarter. The net interest margin (NIM) of the bank has been under pressure, but it is likely to stabilize, going ahead, the management of IndusInd told CNBC-TV18. Speaking to the channel, Romesh Sobti, MD and CEO of the bank says that re-pricing of assets over the past two quarters is the reason why they have been able to contain the fall in NIMs at 9 basis points. He expects the differential between re-priced deposits and re-priced assets to shrink in the near future.

IndusInd Bank expects FY12 loan growth at 25% and they see no concern with regard to quality of assets. "Fee income is likely to be a major driver in FY12," says Sobti. Below is the verbatim transcript. Also watch the accompanying video Q: Let me start by asking you about your net interest margin which has come off a little bit 9 bps do you expect any pressure going forward on MINs because of high cost of deposits?
A: I think that pressure has been seen for the last couple of quarters. Last two quarters has really been a race towards re-pricibility. So re-pricing of assets has happened pre-healthily for us, at least in the last quarter, and that is why we were able to contain the fall by just 9 basis points. Overall cost of funds has been kept in line with the increase in the yield. Going forward, I would expect that since the rest of the market is also now re-pricing, there will be some relief for banks generally and for us as well. We expect stability in our NIMs, going forward. Q: How do you see deposit cost versus ability to pass down, even going forward, do you see them moving in tandem?
A: They never move in tandem. Either re-pricing of assets runs ahead or pricing of deposits runs ahead. However, what has happened in the past 6 months is that re-pricing of deposits has run ahead and now you are seeing a catch up because you are seeing a fury of base rate increases, including that of public sector banks. I would imagine that the catch up game is now happening and the differential between re-priced deposits and re-priced assets will shrink now. Also read: IndusInd Bank Q1 net profit jumps 52.5% at Rs 180 cr Q: What I was asking is, going forward, do you expect more lending rate hikes from banks like yours, say in the next quarter?
A: We respond very quickly and alertly to any signals that we get from the RBI. Last time around, there was a 25 bps hike, and within two days, we increased it by 25 basis points; we will react accordingly. If the market feels that rates will go up, then our rate will also certainly go up. Q: Do you think there is more headroom for deposit rates to go higher or do you think they are beginning to top out here?
A: I think there was a little bit of a spike in the past month or so. I certainly get the sense that they are plateauing out and in certain tenure we have actually seen a mild reduction, especially in the 90 day tenure. Q: There has been some talk about credit quality issues popping out during this year because of the sluggishness that we are seeing across many sectors. This quarter is fine, your gross NPAs are just over 1% of assets, but are you experiencing that on ground at all?
A: We are not seeing any such stress in our book. In fact, we had a down trended gross and net NPA for many quarters now. What is more important is the cost of credit. Gross and net NPAs move quarter-on-quarter, but the cost of credit is meaningful. That is now stable and is exactly the same as it was last quarter. So we are not seeing any stress on our book, whether consumer book or the corporate book. Q: Your loan growth for the current quarter was 30% plus. Do you expect some moderations there because some of the larger public sector banks are now realigning expectations to between 18-20%... do you think you need to also temper the kind of growth that you are seeing for the rest of the year?
A: I see the through-put coming through pretty strongly. We actually expected that our growth would be 25% this quarter; it is actually run up to 30%. Our guidance has always remained that given your small base doing a 25%, we do not see it as an issue for the rest of the year as well. Q: What kind of Current-Account-Savings-Account (CASA) ratio do you expect by the end of this year for IndusInd bank?
A: Our CASA has actually moved up in the last 13 quarters by almost a percent per quarter as a percentage of total deposits. We are now at around 28% and we expect the next two and half years, we would get to the 35% mark because of the increase in our branch network and quality of people selling the new products. It does not grow by leaps and bounds, and over a three year period, we should be in that 35% range.

Q: Do you think your book value per share would hit Rs 100 by the end of this year?
A: That is the guidance. But I think that if you look at the robustness of the fee income that has been seen in the last quarter that we are seeing growing at an even pace. That will improve our return on assets because you use less capital through third party products and things like that. I think we will keep the trend that we have seen over the last 6-8 quarters. Q: To maintain this kind of profitability growth what would you bank on for the rest of the year? Robust NII growth, net interest income growth or do you think fee income will be the stronger element which kicks into the profitability?
A: I think fee is going to be the big driver because we are seeing almost every line growing by between 20-40%. At least for the next quarter or two I would say that fee would remain a driver. Containment of cost would be the next one, and the third is the cost of credit which you can contain that we would be able to sustain that sort of profitability trend lines. Q: But treasury income should fall for the rest of the year. You think should see some downward move there?
A: Our treasury income is not predicated on mark-to-market gains or losses. We hardly have any punting that happens on our government security book. So our treasury income is essentially client driven. 90% of our income is actually client based income, so it