 "We are not dogmatic about growing balance sheet: Romesh Sobti")
IndusInd Bank has decided to extend the tenure of its Managing Director and Chief Executive Romesh Sobti by another three years, starting February. In an interview with Neelasri Barman and Manojit Saha, the veteran banker talks about his plans. Edited excerpts:
In 2008, you were appointed for a three-year term, extended by three years. Now, in your third term, what will be the focus areas?
The initial part of the first three years involved restructuring and restoration of profitability and the bank’s health. In the second three years, the slogan was scale and profitability. That is why we took the inorganic route to enter the credit card business. In the third term, scale with profitability remains the priority, along with dominance in certain sectors such as vehicle finance. We already have a very good market share in this segment — we are ranked first, second or third in every vehicle category. So, we have to sustain the dominance. The share of vehicle finance to our total loan book is 42 per cent.
The point is irrespective of good or bad times, we have grown 30 per cent. It is the steadiness that matters to us. You cannot have spurts and slowdowns. We could have grown 50 per cent instead of 30 per cent in good times; but remember, bad debt is created in good times; it surfaces in bad times. So, credit screening has to remain the same. You cannot suddenly become wiser in bad times, as everybody becomes wiser by then.
The strategy was not balance-sheet growth but growing fee income; the focus was non-balance-sheet growth. Our fee income has grown higher than loans for 23 quarters.
What balance-sheet growth do you expect in the next three years?
If the industry grows 15 per cent, we will grow 25 per cent. If the industry grows 20 per cent, we will grow 30 per cent, as our base is smaller. So, I think, mid-20s growth is probable. During the first three years of my tenure at this bank, we grew 30 per cent; in the next three years, it was 25 per cent. However, we are not dogmatic about how much the balance sheet should grow.
Despite healthy growth in current account and savings account (Casa), the overall deposit growth was only about 10 per cent. Why?
It was a conscious effort not to focus on deposits, but on borrowings, due to the cost advantage. The 10 per cent growth in deposits was accompanied by 25 per cent growth in borrowings. In the last quarter, the cost of deposits was higher than the cost of borrowings and refinancing, which are very stable and long-term. In addition, we also raised about $3,000 million through the Reserve Bank of India’s concessional swap window.
The share of low-cost deposits to total deposits is 32.2 per cent. Where do you see it headed?
We have an ambition to steadily take our Casa ratio to 35 per cent. It could be in 12 months, 18 months or 24 months. Savings account deposits are predictable, but current accounts are volatile. In a steady state, we will be upwards of 35 per cent. Savings accounts are a function of the number of branches, product quality, distribution capabilities and the quality of people selling the products. Through the last four-five quarters, savings accounts have been 35-45 per cent. The growth has been pretty handsome. In fact, this is a bright spot in our balance sheet. We will cross 600 branches by March-end and have about 1,300 automated teller machines (ATMs). The distribution network has increased.
After acquiring Deutsche Bank’s credit card portfolio for Rs 200 crore in 2011, you had said the aim was to treble the portfolio in three years. How was the growth in the card business?
Currently, our credit cards portfolio stands at Rs 435 crore. This portfolio is not designed on the basis of mass penetration. It is designed on the basis of spends. We encourage people to spend on our cards, not borrow on our cards. We do not have revolving equated monthly instalments that can be paid in 20 instalments. We make money on the fees because we charge high fees for the cards. We are open to buying credit card portfolios or, say, loans against properties. Credit cards are not showing an upturn in delinquencies.
Recently the Indian Banks’ Association made a case for raising transaction charges for ATMs. It was also proposed customers would be charged for their own bank’s ATMs, after five transactions.
We are very clear we will not charge our own customers. I encourage you to use my ATM because if you transact with me, you keep balances, too. So, if you use my ATM, you will keep more balances in the account. My target is savings bank accounts and the ATM is a channel to get these.
Promoter stake in the bank is about 15 per cent. Is there any plan to reduce it to 10 per cent, which the central bank usually stresses for existing banks (though for new banks, it is capped at 15 per cent)?
We are already in compliance with the guidelines as far as new banks are concerned. For the time being, it will stay where it is.
In 2008, you were appointed for a three-year term, extended by three years. Now, in your third term, what will be the focus areas?
The initial part of the first three years involved restructuring and restoration of profitability and the bank’s health. In the second three years, the slogan was scale and profitability. That is why we took the inorganic route to enter the credit card business. In the third term, scale with profitability remains the priority, along with dominance in certain sectors such as vehicle finance. We already have a very good market share in this segment — we are ranked first, second or third in every vehicle category. So, we have to sustain the dominance. The share of vehicle finance to our total loan book is 42 per cent.
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Despite having the option to expand rapidly, you refrained from doing so in your second term.
The point is irrespective of good or bad times, we have grown 30 per cent. It is the steadiness that matters to us. You cannot have spurts and slowdowns. We could have grown 50 per cent instead of 30 per cent in good times; but remember, bad debt is created in good times; it surfaces in bad times. So, credit screening has to remain the same. You cannot suddenly become wiser in bad times, as everybody becomes wiser by then.
The strategy was not balance-sheet growth but growing fee income; the focus was non-balance-sheet growth. Our fee income has grown higher than loans for 23 quarters.
What balance-sheet growth do you expect in the next three years?
If the industry grows 15 per cent, we will grow 25 per cent. If the industry grows 20 per cent, we will grow 30 per cent, as our base is smaller. So, I think, mid-20s growth is probable. During the first three years of my tenure at this bank, we grew 30 per cent; in the next three years, it was 25 per cent. However, we are not dogmatic about how much the balance sheet should grow.
Despite healthy growth in current account and savings account (Casa), the overall deposit growth was only about 10 per cent. Why?
It was a conscious effort not to focus on deposits, but on borrowings, due to the cost advantage. The 10 per cent growth in deposits was accompanied by 25 per cent growth in borrowings. In the last quarter, the cost of deposits was higher than the cost of borrowings and refinancing, which are very stable and long-term. In addition, we also raised about $3,000 million through the Reserve Bank of India’s concessional swap window.
The share of low-cost deposits to total deposits is 32.2 per cent. Where do you see it headed?
We have an ambition to steadily take our Casa ratio to 35 per cent. It could be in 12 months, 18 months or 24 months. Savings account deposits are predictable, but current accounts are volatile. In a steady state, we will be upwards of 35 per cent. Savings accounts are a function of the number of branches, product quality, distribution capabilities and the quality of people selling the products. Through the last four-five quarters, savings accounts have been 35-45 per cent. The growth has been pretty handsome. In fact, this is a bright spot in our balance sheet. We will cross 600 branches by March-end and have about 1,300 automated teller machines (ATMs). The distribution network has increased.
After acquiring Deutsche Bank’s credit card portfolio for Rs 200 crore in 2011, you had said the aim was to treble the portfolio in three years. How was the growth in the card business?
Currently, our credit cards portfolio stands at Rs 435 crore. This portfolio is not designed on the basis of mass penetration. It is designed on the basis of spends. We encourage people to spend on our cards, not borrow on our cards. We do not have revolving equated monthly instalments that can be paid in 20 instalments. We make money on the fees because we charge high fees for the cards. We are open to buying credit card portfolios or, say, loans against properties. Credit cards are not showing an upturn in delinquencies.
Recently the Indian Banks’ Association made a case for raising transaction charges for ATMs. It was also proposed customers would be charged for their own bank’s ATMs, after five transactions.
We are very clear we will not charge our own customers. I encourage you to use my ATM because if you transact with me, you keep balances, too. So, if you use my ATM, you will keep more balances in the account. My target is savings bank accounts and the ATM is a channel to get these.
Promoter stake in the bank is about 15 per cent. Is there any plan to reduce it to 10 per cent, which the central bank usually stresses for existing banks (though for new banks, it is capped at 15 per cent)?
We are already in compliance with the guidelines as far as new banks are concerned. For the time being, it will stay where it is.