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Last Updated : Jan 13, 2016 07:18 PM IST | Source: CNBC-TV18

Expect margin expansion; 25-30% loan growth ahead: IndusInd

Romesh Sobti, MD & CEO expects loan book to grow at 25-30 percent with uptick in both vehicle and non-vehicle segments.

IndusInd Bank’s third quarter earnings exceeded expectations. The bank’s net profit grew 29.9 percent to Rs 581 crore boosted by other income, operating profit and net interest income. NII rose 36.2 percent to Rs 1,173 crore year-on-year (YoY). Asset quality remained stable with a 13.5 percent growth in the net non-performing asset (NNPAs) to Rs 681 crore.

Romesh Sobti, MD & CEO of the bank expects recognition in asset quality to worsen for the banking sector in coming quarters before improving. The NPAs have been managed well and the bank does not have any sectoral risks, Sobti says adding that it is too early to say whether stressed assets are stabilising.

Speaking to CNBC-TV18, Sobti says that growth in both retail and corporate space has been robust in the third quarter. Demand recovery is visible in the commercial vehicle (CV) space, he says adding that growth in two-wheelers and CVs is expected to continue. The bank's vehicle finance stands at 35-36 percent of the total book. 

Sobti expects loan book to grow at 25-30 percent with uptick in both vehicle and non-vehicle segments. He also expects expansion in margins in coming quarters.

Below is the verbatim transcript of Romesh Sobti's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Latha: Let me start with the asset quality since that is the prime concern, your asset quality gross non-performing loans (GNPL) numbers did see 13 percent rise and there were fresh additions in terms of slippages. Can you give us an idea of what the trend of slippages will be? Where were the maximum slippages and are they showing a downtrend?

A: What is more important here is the credit cost and the credit cost moves by 2 basis points (bps) only. So last quarter it was 15 bps and this quarter 17 and the credit cost came to just 15 bps. The slippage ratio also is very range bound.

One year ago, it was 1.1 percent and now it is about 1.2-1.29 percent. So I think we are seeing a pretty range bound movements in our NPAs and given the current circumstances I think this has been well managed and controlled.

Latha: Both NPA addition and credit costs are among the best in the industry. We understand both from Reserve Bank of India (RBI) sources and from bankers that there has been a lot of prodding from the regulator for banks to recognise more NPLs and performance is good in spite of the prodding, can you tell us exactly what the message is from the regulator?

A: No, I think it is uniformity and consistency in the recognition process across the entire banking sector. So I think the theme behind this asset quality review was essentially that banks have to work in unison and if one bank has an NPA or two have an NPA then you cannot be an exception to that.

So, that is the thematic part of it and in that process, it seems a number of accounts have been unearthed. As far as we are concerned, whatever becomes an NPA, is recognised as an NPA immediately. So there is no question of deferment or things like that. So in the 17 bps all this is already baked in.

Sonia: Can you throw a little more colour on the slippages in the corporate segment, which have gone up a tad bit for you to Rs 110 crore because this is something that the Federal Bank had also told us about yesterday that the corporate segment slippages are increasing, which are the accounts, which are the sectors that is facing a little bit of hit and will you have to provide for more in the quarters to come?

A: Overall let me put it that we had a budget of a maximum of 60 bps on the credit cost. In the nine months period, it has already elapsed our net of recoveries, our credit cost is 40 bps so we are well on target so it remains a little range bound.

I don’t think there is any particular colour to it. There is no sectoral sort of issues. So the recommendation is that we have done in this quarter or the previous quarters will go across sectors. So we don't see because we don’t have concentration risk in our book. So there is no particular sector that seems to be more stressed plus the ticket sizes in our book are very small.

Latha: I agree you are not the most representative bank when it comes to trying to find the health of the corporate sector but nevertheless would you say that the malaise will worsen or it is stabilising?

A: It is too early to say it is stabilised because from what we hear because nobody has told us that the number of accounts that were unearthed in the asset quality review was pretty sizeable. Therefore recognitions in the coming quarters will probably worsen before they get better.

Sonia: Let us talk about the positives from the numbers because I was very enthused by the strong growth that you have seen in the retail loan book especially in the commercial vehicle loan book which has gone up by about 31 percent or so, are things getting better and do you think you can maintain this run rate in the second half of the year?

A: I think that this recovery is pretty secular and this recovery in especially in the commercial vehicle sector is in spite of the fact that the mining sector which is a big consumer of commercial vehicles is yet to start of gather momentum.

So the replacement demand itself has given a pretty robust increase and as the mining sector and especially the coal mines etc which were auctioned now coming onstream, I think there will be more demand. The main feature to watch out is that the freight cost hasn’t fallen. They are holding very firm which means that there is no spare capacity. Therefore we believe that the coming quarters, in the coming year will be even more healthier in terms of the growth for this particular sector.

Latha: What part of your book is accounted for by CVs?

A: The MHCV part of it was 16 percent of the total book and vehicle financing is about 35-36 percent of the total book. So it is pretty diversified, it is not just MHCVs, it is two-wheelers, it is cars, it is three-wheelers, it is utility vehicles.

Two-wheelers for instance are almost flat but last few months we have seen a little uptick there. Utility vehicles and the light commercial vehicles are still lagging behind which is a natural phenomenon so first the MHCV goes and then the light vehicles follow.

Latha: What kind of a loan growth till coming quarters?

A: We have good times and bad times -- we have shown a growth between 25 percent and 30 percent. We are seeing a good uptick not only in vehicle financing but also in the non-vehicle retail part which was a very small part of the bank's books but now it is almost 10 percent of the bank's book and that is going as a very heavy rate because it is a small base.

The corporate side also we have seen robust demand but in this quarter, the quarter-on-quarter (Q-o-Q) growth in retail was higher than the Q-o-Q growth in corporate but corporate on its own did do about 28-29 percent. We will remain in this range.

Latha: How will the margins do in the coming quarters?

A: The beneficial movements that we see is that we have a very large fixed rate book. About 70 percent of the book is fixed rate so as rates fall, I think there is room for margin expansion.



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First Published on Jan 13, 2016 10:05 am
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