BS Banking Annual 2018: Sobti wants livelihood financing as 50% loan book

Vehicle finance is where we have solid domain knowledge, coverage and clear leadership. It?s seen us through thick and thin

Romesh Sobti, Managing Director and Chief Executive Officer, IndusInd Bank, tells Nikhat Hetavkar and Abhijit Lele that the bank will increase its focus on rural banking and also foray into areas such as insurance, mutual funds and stockbroking

How has your journey been since you took over the reins in 2008? 

When we came in 11 years ago, we found a bank where weaknesses outnumbered the strengths. In this period, we had some tailwinds assisting us, a lot of luck and, of course a determined execution of strategy, which laid down what you could do and more importantly, what you can’t or shouldn’t do. Our belief was that you should be a universal bank and do everything that the regulator allows you to do. On the other side, you don’t need to manufacture all products such as insurance and asset management. Instead, you can be a good distributor of products. 

Will you then not get into these areas? 

Today, in addition to scale, we also have experience in these products. We have a massive client base, which is buying these products. If you want total and complete client-centricity, you need to give the full range of products. We now have the domain knowledge to manufacture products. If there is regulatory blessing, we are definitely interested in asset management, stockbroking and all insurance — life, general and health. We will also set up an asset management firm and a brokerage firm, because we are generating huge amounts of business for our partners.   

What will be your growth areas, going forward? 

We have four growth engines. One is para-banking, which will start after we enter mutual funds, insurance, and broking. The second is microfinance, and with the imminent merger of Bharat Financial Inclusion (BFI), it will become about 8-9 per cent of the book. Microfinance is Rs 5,500 crore now and Bharat’s book is Rs 13,000 crore. The third leg is focus on rural India where we are putting a lot of strategy and money. The fourth is our organic growth. 

How will the BFI merger help?

Our model has been mostly urban and semi-urban, but in the last few years, rural India has changed. The cost of delivery of credit to the poor is reducing and it is the new frontier of banking. It is not just lending, but also about capturing savings and leveraging an entire chain of products.

With just 300 branches in rural India, it was not possible for us to address this segment. There are 600,000 villages in the country. Bharat Financial covers 115,000 of them with 1,800 branches and has 8.5-9 million customers. Bharat Financial is present in 19 states, so there is room for growth. 

How did you grow your low-cost current and savings accounts by over 10 percentage points since 2014?

There is a clear linearity between branch networks and CASA. As our branches have grown so has the CASA and you have both geographical and segmented coverage. CASA grows because of transactions. If you get people to transact more, they have to keep more money in the bank. We have also kept bringing innovations to help the customer, which has led to their retaining more funds with us. 

What are these innovations? 

We work on this whole concept of convenience, things that customers desire but have not asked for. Ten years ago we introduced “Choice Money” ATM, where you had the choice of withdrawal in the denomination of your choice. We also came up with “My Account, My Number”, where customers can choose their own account number. Today too, 20 per cent of our 115,000 new customers every month come because of this innovation. We came up with video branches, instant redemption of reward points and other compelling reasons for people to bank with us. 

How comfortable are you with your lending profile? 

Vehicle finance is a place where we have solid domain knowledge, coverage and clear leadership. That business is covered through 1,200 separate coverage points. It’s seen us through thick and thin and is currently on a nice growth path. Non-vehicle retail is 10 per cent of our book with nine products ranging from credit cards, personal loans, loans against property and so on. Sixty per cent is split between the whole lifecycle chain starting from microfinancing to MSMEs to the very large corporates in both public and private sectors. Our core theme is livelihood financing. 

Can you elaborate on this? 

It is our desire that the half of the bank’s book should be related to livelihood financing by March 2020. The entire two-wheeler business is livelihood finance — it is the small trader or plumber who buys the motorcycle for work. We don’t finance the 100-strong fleet commercial vehicle operators, we finance the guy with two trucks. Microfinance is all livelihood and it has lived up to its reputation of low delinquencies.   

What is your process for succession planning?

The whole succession plan was put in place four years ago. The number of people critical to the bank has increased. So succession planning goes deeper, till three levels down. We have two replacements for every person at these levels, except one or two. It is a continuous search for succession from within and from outside.