In an interview to CNBC-TV18, Romesh Sobti, MD & CEO of IndusInd Bank spoke about the outlook for his company.
Below is the verbatim transcript of the interview.
Q: Is recovery well underway?
A: As I said in the press conference, it is not time to see the impact of remonetisation. Demonetisation had some beneficial impacts as well which I have highlighted, which is essentially the surge of liquidity, low cost liquidity that came in. certainly, that has benefitted us and some of it has stayed. On the other side, of course, some disbursements and all were interrupted, microfinance, vehicle finance, etc. but we are picking up pretty rapidly. So, I would say that Q1, we should start looking more at that remonetisation impact than the demonetisation impact.
Q: Can we expect similar loan growth levels in the coming year as well and where do you see the bulk of that loan growth demand coming from? As you said, this quarter, corporate has grown faster than retail.
A: We do expect loan growth to remain in the mid-20s. This quarter was a little bit of a surprise because we saw a little surge on the corporate side of the business, mostly on the working capital side. So, there are a few things working. One is that there is a little bit of a shift in the market share, two that we have got new clients, three we are deepening existing relationships and they are part of the market share and fourth, our competitiveness on pricing is certainly playing out now.
The fact that we have Marginal Cost of funds based Lending Rate (MCLR) and we have short tenure repriced at a different rate. For longer tenures which was not the case in the base rate regime, that disadvantage has gone away. All these are contributing to the mid-20s growth in the loan book.
Q: You said microfinance is a space that really excites you right now. What is the current portfolio you have and what is the target from here on and how do you plan to achieve it?
A: Microfinance is a space that interests us and it has interested us for a long time. I have personally done microfinance way back in State Bank of India in the early 1970s and we did it in our previous bank ABN Amro and that is why we picked it up here. Microfinance, over a 20-year period has been very stable. It is now regulated. The comments about usurious rates being used is incorrect, therefore there is stability and they create livelihoods. And we have just touched the tip of the iceberg, so a lot more has to happen in microfinance and we want to be in the middle of it. The book is less than Rs 3,000 crore now. We do expect that this book will more than triple in the next three years.
Q: Would an inorganic route be the most sensible decision to make as far as growing your microfinance book is concerned or are you looking to grow it organically?
A: Our plan for tripling this book is purely organic. Now, what makes more sense, it has to fit the bill on many accounts, it has to be accretive to us in return on equites (ROE), in return on assets (ROA), in the earnings, and should give you some sort of a domain leadership. So plans as of now, are organic.
Q: Does Bharat Financial Inclusion fit the bill on all of this counts that you have just stated?
A: There are many who fit the bill. It is not that we will do a deal with all of them. So, it is not that we have even taken this to a stage that we have taken it to the board or something like that. These are proposals that are brought to us and we look at all these proposals. There are more than one, I can tell you this.
Q: What is on the table currently? Are you looking at the portfolio acquisition or would you look at a microfinance institution (MFI) or a non-banking finance company (NBFC)?
A: Both.
Q: You have explicitly stated that you expressed an interest in Bharat Financial Inclusion. At what level are those talks, because it is not that you have not looked at them? You have explicitly stated that you were interested.
A: We said that we are looking at several players. One of them is the ones you keep naming about. We have not done any particular extra work there. I told you none of these cases have really come to a stage where we can go to a board and we can say we are interested.
Q: But since you have expressed an interest, at what stage are those negotiations if at all. By when do you think you would close the transaction, if any in the MFI space?
A: That is indeterminate. They are at many different stages. You cannot really say that this is at this stage or that stage.
Q: But is valuation a concern at some of these MFIs that you are looking at? Is that what is coming as a hindrance?
A: Valuation will always be a concern. Whenever you do an acquisition, whether it is any sector that you do, valuation will always be, it has to be right valued. You must keep value for your shareholders and not give it away to the shareholders of the acquiree bank.
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