Loan growth at 23%; Q1 net slippages at Rs 7 cr: IndusInd

The bank also plans to come out with a Rs 750 crore preferential share issue in one month. Post this fundraising, capital adequacy will rise to 16 percent, says Sobti.

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

Latha: Just take us through a little bit of details in terms of growth. Ultimately India is a growth story so how has growth performed in the first quarter? How would you extrapolate for the remaining three quarters? Do you see credit off take picking at all and especially if you can give us some colour on the commercial vehicles and the construction equipment space?

A: This quarter if you look at the growth factors, the growth in the balance sheet was matched by the growth in the bottom-line. Our loan growth came up at 23 percent although of course the industry growth was way down at about 9.3 percent. We matched the balance sheet growth with the growth in profit after tax (PAT) which also came up at 25 percent. For us the thing to watch really is the sequential growth; year-on-year (YoY) growth is of course very healthy in the 20’s but sequential growth also have shown all the vectors, revenue lines and the PAT, sequential growth has been in mid to high single digits. So overall I think the loan growth has been aided by both the corporate side of the business which grew by 27 percent and also by the retail business. Retail used to be just about 12-13 percent that has now moved to about 18 percent growth. It is driven both by revival of the vehicle financing as well as non vehicle retail financing. Both the vectors have shown pretty good increase.

Your question about vehicle financing - we are not so big on construction equipment. We are not a big participant there. We just do the retail part of that business so we can’t throw too much light on that business. However, that business has gone through some rough period especially those in the higher value machines etc, the lower value machines are still doing okay. Medium and heavy vehicles we have grown about 33 percent year-on-year and sequentially also we have grown about 6-7 percent. We are seeing that uptakes are now becoming a trend. It may be too soon to say it is a robust trend, I think that trend will finally emerge by September. However, certainly I think we are seeing growth back in that area.

Sonia: Only in the commercial vehicle (CV) business what exactly was the loan growth in this quarter? Was it 33 percent and what could be a sustainable loan growth run rate for the CV business going ahead?

A: Every quarter we are seeing a sequential growth increase. Of course the manufacture numbers are showing even higher growth numbers. The financial numbers were seemed to be stagnating two quarters ago. But then they started growing as well so sequential growth is 7 percent. We do expect that the second half will see more robust growth as growth comes back into the areas of mining for instances which takes lot of these medium and heavy vehicles. So, overall I think the year as a whole manufacturer are showing growth numbers or projecting numbers of 40 percent and above. We also expect that we should be in the 20-25 percent growth range.

Latha: You are basically saying that you are noticing a turn in the economy itself if the CV industry can be seen as lead indicator?

A: CVs accompanied by the other features that we are noticing that the release of moneys in the area of roads for instance that in turn has a cascading effect on cement, steel etc. So, CV’s are the front runners of a revival in the economy. Now I think there is a growing consensus there, the green shoots are real.

Sonia: Do you notice any signs of asset quality problems in the corporate loan book per se?

A: We have stability in the corporate loan book. Quarter IV was a bit of a blip where we had to do some sales to asset reconstruction company (ARCs). However, we are back to business as usual. Our net slippages for the quarter were only about Rs 7 crore. We had recoveries from the ARC book. Restructured book went up by little bit, but overall gross nonperforming assets (NPAs) moved down by about 2 basis points. Net NPAs are stable at 31, so overall stability; in our book at least we are not seeing any negative sort of impairments or adverse movements.

Latha: Your qualified institutional placement (QIP) money came at the end of the quarter or early this quarter so you should expect margins to improve in the July quarter?

A: The money actually came in on the July 3rd. There were two components to it one - the QIP money came in Rs 4,300 crore and a preferential allotment also happens to bring the promoters back to 15 percent and that way another Rs 750 crore that will come in at the end of the month. So, certainly this is going to have a beneficial impact on margins.

Latha: You are clearly one of the leading smaller private sector banks. Are you doing anything in the digital space? That is where Aditya Puri has invested so heavily. Should we see growth in that direction in IndusInd Bank?

A: Every bank worth its salt is doing something on the digital side. We have been building up the digital front for the last two years. I think very soon this will become hygiene so it is not a big talking point. The way you sell, the way you process your businesses everything is getting digitised. It is just a question of airing what you have already done.

We are focused on the sale side; we are focused on the customer convenience and of course on the processing side how to reduce cost through digitisation. So a lot of work is happening. It may not be evident but I think as I said earlier most banks are now working on this front. The real test of course of the success of digitisation ultimately is, did you increase your revenues or did you cut your cost? So did you reduce your cost to income ratio, I think that will be the final test of the consequence of digitisation.

Latha: Have you already seen signs of improvement in the cost to income ratio?

A: Cost to income ratio for us fell by 40 basis points so we did an improvement but that may not necessarily be a consequence of digitisation. That is another consequence of many other efforts.

Sonia: Just coming back to that point you were making about the corporate loan books, the reason I asked is because some analyst are concerned about the rating profile of your corporate portfolio. Your exposure is rated BBB minus remains quite high, I understand more than 25 percent of your total exposure do you look to bring that down in any way?

A: It is a question of, it is all investment grades. We are, amongst the few banks which disclose the ratings profile of its portfolio. We haven’t seen any mark shift downwards. Of course we had a lot of AAA earlier which was cash backed bullion imports. The bullion imports have now vanished so that is why little bit of a triple A has gone. However, we were always in this vicinity on even BBB minus which is solidly investment grade. Sub investment grade we have a very small book which is entirely secured as well. So, no noticeable shifts in our rating profile.

Latha: You have got this great deal of money coming to you from both the preferential as well as the QIP. What kind of loan growth are you preparing for in the current year?

A: The loan growth for good times, when we had good time last time around was 25-30 percent. When we had bad times we were 20-25 percent so I would reckon that we would keep a pretty steady loan growth. Our focus is really to rebalance the book so that the retail part becomes almost 50 percent, is now 42 percent. So capital is going to be used for growth, it is growth capital but we are not going to press the paddle so much on loan growt. Best of times it is going to be not exceeding 30 percent.