The Hindujas-promoted IndusInd Bank managed to expand its loan book at a smart clip in 2009-10, while keeping a lid on non-performing assets (NPAs). Kicking off the earnings season for banks, the lender has reported an impressive 136 per cent jump in net profit to Rs 350 crore, while keeping net NPAs at 0.5 per cent of assets. Managing Director and Chief Executive Officer Romesh Sobti tells Sudeep Jain that managing assets and liabilities in a rising interest rate environment will be the biggest challenge for the banking sector in the new financial year. Excerpts:
What will be the main profit drivers for your bank in the new financial year?
With 60 per cent of our revenues coming from interest income, an upward movement in the net interest margin (NIM) will be a driver and that will be facilitated by growth in both loan book and low-cost deposits. So, NIM is certainly going to be a driver going forward.
Our fee lines are pretty diversified. On the consumer side, we look at third-party products, insurance, mutual funds, foreign exchange compliance, trade and remittances. Trading income is volatile, so we don’t factor that into our calculations. If it comes, fine. If it doesn’t, we don’t lose sleep over it. But certainly, trading income is one of the contributors.
On the cost side, maintaining cost is important and we do that through use of technology, changing processes, centralisation and improving productivity.
What challenges do you see in the new financial year?
Managing the asset and liability portfolios is always a challenge, but in a rising interest rate scenario, that requires even more time and effort.
As far as asset quality is concerned, most banks have cleaned their portfolios. And raising capital is always a challenge.
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So, I think these are the major challenges.
Could you tell us a bit about your plans on the investment banking front?
We looked at our corporate banking business and came to the conclusion that our mid-market clients also have investment banking needs. So, we set up a small investment banking team last year. We are pretty happy with the revenues earned by the team and raised our aspirations for this year. We plan to triple our team from five to 14-15. The focus will be on loan syndication, debt structuring and other debt capital market services.
Are there any new businesses that you plan to enter?
We recently entered the non-resident Indian (NRI) business, which focuses on customers in West Asia. Apart from remittances, we are focusing on selling domestic wealth products to NRIs. On the corporate banking side, we will start supply-chain financing to support the suppliers of our corporate clients. And, we plan to target high net worth individuals by offering them wealth management services.
If we leave aside your vehicle finance portfolio, IndusInd Bank is very underweight on retail lending? Do you plan to beef up this business?
Before we decide to expand any portfolio, we always look at margins. And, if portfolio expansion is going to come at the expense of margins, we are not interested. We already offer car and home loans and have the capacity to lend much more in both segments. But, margins in these segments tend to be significantly lower than in the other segments that we are active in, such as two-wheeler, three-wheeler and commercial vehicle financing.
Will the move to the base rate system have any impact on the bank’s business?
A move to the base rate system will not necessarily lead to a change in lending rates. It is only the benchmark that will change. So, if earlier a customer was getting a loan at the prime lending rate minus 250 basis points (bps), now he will get a loan at base plus 200 bps, which might work out to be the same. So, it’s not going to change the way banks do business.
Earlier, there was expectation that banks would have uniform inputs while calculating their individual base rates. According to the latest RBI circular, that is no longer true. I think every bank will try to make sure that its base rate is as low as possible to be competitive.
What kind of credit growth are we likely to see in the new financial year?
This is the year when credit growth will make a strong come-back. Since we are growing from a smaller base, we are confident of achieving a 25-30 per cent growth rate in our loan book. We intend to maintain a credit-deposit ratio of 75 per cent.
How many people do you plan to hire in the current financial year?
We hired 1,250 last year and plan to hire another 1,000 this year. That will take our total strength to 6,300. We currently have 210 branches and hope to open another 100 this year.
How much time do you have to reduce your promoter shareholding below 10 per cent?
We submitted a road map detailing our plan to reduce the promoter holding below 10 per cent to RBI last year. The banking regulator has given promoters time till the end of 2012 to reduce their holding.