Q4 to outdo Q3; see rate cut post Budget: IndusInd Bank

Latha: What is the general takeaway from the first month of the current year as well? Do you think you have some elbow room to drop deposit rates further, do you see margins in the Q4 improving?

A: As far as deposit rates go, there is enough liquidity and on the other hand, credit off take remains weak; the system off take is sub 11 percent. So, there is a lot of credit chasing, very few good borrowers so you are seeing a drop in the lending rates so automatically there should be a drop in the deposit rates as well.

Sonia: We are just getting some exclusives from the finance ministry sources that there could be a rate cut by the RBI or rather there should be a rate cut by the RBI before the February 3 policy itself. What is your own estimate of what the RBI could do and when it could come about?

A: Given the very strong focus that we have seen from the RBI on issues like the fiscal deficit and inflation, I think they would watch on the events that unfold with the Budget. My own sense is if that is the sort of focus then the rate cut should happen post Budget, if they want the comforts coming out of the Budget. However, everybody is hoping that there is a pleasant surprise and it happens in the first week of February.

Latha: If the rate cut were to come say even late January or early February how much do you expect and what will it mean to you basically? If repo is at 7.75 do you see a tumbling of deposit and then lending rates in the system?

A: The time for symbolic cut is over, symbolic cut could have happened three months ago. So, a cut is meaningful only if it is 50 basis points or more. Also, I believe that although bankers would ideally like deposit rates fall to precede the fall in lending rates, this time around because credit growth has been very weak lending rates have also sort of come off at least at the top. So, we can certainly feel that at the top end of the corporate chain lending rates are under pretty intense pressure.

Latha: Just tell us how much you expect, let us assume a 0.25 percent comes late January or early February, what will you do, are you seeing yourself dropping deposit rates, are you definitely seeing yourself dropping lending rates?

A: I think both will happen in tandem because the lag has already passed. So, if there is a drop, base rates will get cut. It is no longer play around margins; I think the base rates will have to get cut which means it will be a widespread cut across the board sort of a cut.

Sonia: Coming back to your earnings, the loan growth was quite strong this time around. Are you noticing any concrete signs of a pickup in the vehicle finance book and do you see the demand for commercial vehicles loans go up in the next say three to six months?

A: We were expecting to do slightly more than what we did in terms of our credit growth. Credit growth came around 22 percent and the bias in the credit growth again was more on the corporate side than on the retail side. So, we are certainly seeing uptick for instance in the vehicle finance business.

After about four or five quarters we have actually seen a positive accrual to our vehicle finance book otherwise it was flat or down. However, it is not a flood yet so we are not seeing a surge. Many parts of the vehicle finance business are still yet to open. What we are seeing is replacement demand; that is already happening. I would expect that more will happen in Q4 and then therefore in Q1 of next fiscal we could start seeing the beginnings of the surge.

Sonia: Your retail loan growth has been modest this time around at just 10 percent, now that you are noticing signs of a pickup how much do you think it could go up by?

A: At the peak our vehicle finance book used to grow 30 percent. If you see the composition of the 10 percent, a lot of it comes from non-vehicle retail growth. So, other parts have grown well. So, we do expect that rebalancing of the book will happen now and that has very positive impact on our margins going forward. So, we expect Q4 to be better than Q3 and certainly Q1 next year even better.

Latha: Margins could go towards 4 percent?

A: Aspirationally, we have always thought of that but something or the other always happens to hold it back. However, arithmetically, it should get to that sort of a level in the next 12 months or so.

Latha: Do you notice at least a fall in the amount of slippages? Is enough business coming back so that people are defaulting less?

A: We have certainly seen a drop in the slippages in the MHCV sector. One of the factors that has contributed to a higher kitty in the hands of the typical commercial vehicle operator is a drop in diesel prices. Every Re 1 drop in price is Rs 6000 more in his hands every month. So, Rs 7-8 drop is Rs 40,000; typical installment is about Rs 40,000. So, it could be better in the payment department, the collection department.

Sonia: How much is the cost of wholesale deposits gone down so far and how much do you expect it to go down further?

A: I think for wholesale deposit rates you get a fair indication in the certificate of deposit (CD) rates. So we have certainly seen rates coming off by about 25-30 basis points over the last quarter (Q3). However, that will now get accelerated. So, I think the wholesale cost of deposits will go down pretty fast. I would say that it will keep in tandem with the rate cut.