After the merger of Ashok Leyland Finance (ALF), the low-profile IndusInd has started growing at a faster pace in the retail space. In an interview with Business Standard, Managing Director Bhaskar Ghose discusses plans for growth and acquisitions. Excerpts from the interview:
IndusInd Bank has been a laggard among the new private sector banks...
If you look at our financial ratios "" profitability, productivity, capital adequacy ratio and so on "" they are better than the peer banks. In terms of size, however, we trail ICICI Bank, HDFC Bank and UTI Bank. But we are ahead of IDBI Bank, Centurion Bank, Bank of Punjab and Kotak Mahindra Bank.
The other aspect is visibility. We have been among the less visible banks so far. This is because we have always been a wholesale bank. Visibility is often a function of how many branches, ATMs and extension counters you have.
At present, we have 98 branches. Two weeks ago this count was at 71 and three years ago the bank had only 25 branches.
By the end of the current fiscal, the bank's branch network is likely to go up to 130. Subject to Reserve Bank's approval, we will convert the erstwhile Ashok Leyland Finance (ALF) branches into bank branches. This will take our branch strength to 210 by October 2005 "" very close to UTI Bank.
We have 170 ATMs, much less than most other banks. But we have bilateral tie-ups with UTI Bank and Corporation Bank, which takes the number to 2,000. We have also changed the colours of the bank's logo to signify its new identity.
Are you repositioning IndusInd Bank from a dominant corporate bank to a retail bank?
No, we are making sure that we have a better balance of business. By the end of Q3 of this fiscal year, the bank's loan book should be about Rs 9,000 crore (a part of it was securitised) of which the corporate book is around Rs 4,000 crore and retail around Rs 5,000 crore.
Till a year ago our retail book comprised less than 10 per cent of our portfolio.
On the liabilities side, even today our book is largely wholesale since retail deposits take time to develop. Retail deposits now constitute 11 to 12 per cent of our total deposits but this will change over time.
For other banks, retail loans cover home loans, education loans and car loans but for us they mean loans to buy commercial vehicles and three- and two-wheelers. Few banks operate in this space.
We are into these areas mainly on account of the merger of ALF. Going forward, we want to increase our presence here as the yields are high. The average yield on our vehicle loans is around 12 per cent while the traditional retail assets of other banks earn 8 to 9 per cent.
The growth possibility is enormous in these areas. For instance, two years ago, not more than 10 to 15 per cent of two-wheelers were sold through bank finance. Today, the proportion is 45 per cent.
However, as a part of our retail product suite we will offer car loans, personal loans and home loans.
On an average, a home loan has a tenure of 12 years and no bank has a 12-year liabilities. For most banks, the average tenure of deposits is 15 to 18 months. The market is changing rapidly.
We have seen that institutions that used to keep surplus funds in bank accounts are now deploying them in other avenues like mutual funds.
It's a matter of time before this practice catches up with retail investors. Thus there's a possibility of an asset-liability mismatch.
Besides, most borrowers today go for fixed rate loans at 7.75 to 8 per cent. From our perspective, why should the bank put money in a retail asset for 20 years at an 8 per cent fixed rate, when we can get 12 per cent on a three-year commercial vehicle loan?
You are changing the business strategy following the merger of AFL with the bank. In the past, such mergers have failed and led to the downfall of banks.
At the time of merger, ALF had a capital adequacy ratio of more than 19 per cent against the regulatory requirement of 12 per cent. For the past three years, ALF was had gross non-performing assets (NPAs) of 1.8 per cent and a net NPA of 0.8 per cent "" better than that of the bank.
Neither from the quality of assets, nor from the stability perspective can this merger create a problem for the bank.
The merger has, in fact, enabled the bank to get additional funds to boost its capital adequacy ratio besides reducing the NPAs. Last year, the bank used part of ALF's reserves to do some accelerated write-offs of NPAs.
Most of our incremental loan growth has come from commercial vehicles and two-wheeler financing. In fact, the retail growth has mainly come from ALF's traditional areas of lending.
Has the promoter's credibility posed any problems for the bank?
Perhaps there was a perception problem, but that has been diminishing.
When I joined the bank in October 2002, if there was a mention of Bofors in the newspapers, we used to get calls from worried public sector units that had money with us, or insurance companies asking for clarifications. We always had to do a major exercise to pacify their fears.
Today we do not receive calls even if Bofors hit the headlines. The bank has established itself as an independent entity. We are under RBI supervision and keep an arms-length relationship with the group.
So is it a Hinduja Bank?
There are two or three aspects. In 1994, the banking licence was handed by the finance ministry not to the Hindujas, but to IndusInd Enterprises and Finance Limited (IEFL) and IndusInd International holdings Limited (IIHL). So, on record the promoters are IEFL and IIHL.
IEFL does not exist anymore. It was reversed-merged with the bank about two years ago. At the time of the reverse merger, IEFL had over 40,000 shareholders.
IIHL currently has over 800 shareholders, all of whom are high net worth individuals, mainly Sindhis, Punjabis and Gujaratis. The Hindujas hold the largest single number of shares in the bank but they are by no means the sole owners.
As far as the bank's current shareholding is concerned, IIHL holds 31.3 per cent, the second-largest shareholder is Ashok Leyland with 15.6 per cent, which they are required to bring down to 10 per cent by early July 2005. The rest of it is widely held.
Ashok Leyland's share could be reduced either by selling shares in the market or getting group companies or promoters to pick up the excess stake.
The promoters are keen to make sure that they can hold as high a stake in the bank as the regulation permits them to. Having strong promoters with deep pockets always helps.
Technically, it's not an Hinduja Bank in as much as they do not hold a majority stake in the bank. But they are the single-largest shareholder.
As the consolidation phase kicks off in banking, do you see yourself as an acquirer or as a target?
We are keen to grow through acquisitions. We have the advantage of a high capital base. The most obvious targets for us at this time would be successful NBFCs and not a bank for the simple reason that if you take a look at the new private sector banks, there are a few worth acquiring that are available for sale.
If a foreign bank wants to buy out your bank, won't the owners want to cash out?
IndusInd is not up for sale. The promoters have a long-term strategic interest in the bank. I would be surprised if I would have to wake up one morning to find that we were being sold.
